BUSI

NESSSTUDI
ESNOTES(
6025)
TOPI
C1:BUSI
NESSI
NITSENVI
RONMENT
TheNeedf
orandNat
ureofBusi
nessAct
ivi
ty

Sever
aldefini
ti
onshavebeenputforwardtodefi
newhatabusinessreal
lyi
s.
Thisint
roduct
orypartseekstohelpyouunderstandthemai
nf eat
uresofa
busi
nessandexplor
ethevari
oustypesofbusi
nesses.

Def
ini
ti
on(
s)f
orBusi
ness

Abusi nessmaybedef i
nedasa“ setofst ablesoci
alrel
ati
onshipswhichare
deli
beratelycreatedwiththeexplicitorclearint
enti
onofachievingaspecif
ic
goalorpur pose”.Thisdef i
nit
ionhighl
ight
st hefactt
hatabusinessismadeup
ofan i nter
li
nked networkofsoci alrel
ationshi
ps whose main moti
ve i
st o
achieveaspeci f
iedobject
ive.

Iti
salsodefinedas“anyf
orm ofhumanassociati
oninwhichpeoplearedri
ven
byt heaim ofachievi
ngcommonobj ect
ives”
.From t
hisdefi
nit
ion,itcanbe
notedthatwhatbri
ngspeopl
et oget
heristheunani
mousandcollecti
veneedto
real
isecert
aindesi
redobj
ect
ives.

Anor ganisati
oncanal sober ef
err
edt oasanygr oupingofpeoplewhowor k
towardst heat t
ainmentofacommonobj ect
ive.Itisaf or
m ofever yhuman
associat
ion r esponsible for the achievement of a speci fi
c obj ect
ive.
Managementwasdef inedbyMar yPar kerFolletasthear tofgett
ingt hi
ngs
done through peopl e.Managementi s a discipli
ne which i
nvol
ve planning,
contr
olli
ng,leading,coordi
nati
nganddirecti
ng.

Cl
assi
fi
cat
ionofor
gani
sat
ions

Or
gani
sat
ion can be classi
fied i
nto t
hree cat
egor
ies which are publ
ic
or
gani
sat
ion,
pri
vat
eorganisat
ionandnon-
government
alorgani
sat
ions.

Pr
ivat
eSect
ors

• Comprisesofbusinessesownedandcont r
oll
edbyi
ndi
vidual
soragroup
ofindivi
duals,witht he objecti
ve ofpr
ofi
tmaximi
zation e.
g.Del
ta
cor
poration,
Unil
everandot hers

Publ
icSect
ors
 • Compri
sesoforganisati
onsaccountabl
etoandcont r
oll
edbycentr
alor
l
ocalgover
nmentwitht heobject
iveofpr
ovidi
ngmer i
tandpubl
icgoods
ataf
for
dablepr
icese.g.ZBC,ZINWA,NRZ andother
s

Non-
gover
nment
alor
gani
sat
ion

• Theseareorgani
sat
ionwhichofferwelf
areandchar
it
ytot
hepeopl
ee.
g.
Oxfam,UNICEF,CAREint
ernat
ionalet
c.

Level
sofEconomi
cAct
ivi
ti
es

Theyaret
hreelevels/sect
orsofeconomi
cact
ivi
ti
esi
nacount
ryandt
hese
arepr
imar
y,secondaryandter
ti
aryl
evel
.

Pr
imar
ySect
orAct
ivi
ty

• Aresect or
swher efi
rmsareengagedinfar
ming,f i
shi
ng,andallother
i
ndustriesthatext
ractnat
uralr
esour
cessothattheycanbeusedand
processedbyotherfir
ms?Theyprovi
de r
awmaterialsf
orthesecondary
sector

Advant
ages

• Pr
ovi
desr
awmat
eri
alsf
ort
hesecondar
ysect
or.

• Cr
eat
ionofempl
oymenti
nfar
ms,
mineset
c.

• I
ncr
easet
hegr
ossdomest
icpr
oductoft
hecount
ry.

• Gener
atesf
orei
gncur
rencyt
hroughexpor
tat
ionofcashcr
ops.

Secondar
ySect
orBusi
nessAct
ivi
ty

• I
nvol
ves manufact
uring and pr
ocessi
ng of pr
oductsf r
om natur
al
r
esour
ces,f
orexampl e,br
ewi
ng,baki
ngandconstruct
ion.I
tusesi
nput
f
rom t
hepri
marysector.

Ter
ti
arySect
orAct
ivi
ti
es

• These ar ef i
rms that provi
de ser
vices to consumers and ot
her
businesses such as r
etai
li
ng,tr
ansport,banki
ng and tour
ism.They
providebackupservi
cesforpri
mar
yandsecondar ysect
ors

NB t
heref
oret
hese sect
ors orl
evel
s ofeconomi
c act
ivi
ti
es ar
e ofequal
i
mport
anceandtheycannotbeusedi ni
sol
ati
onbecausesecondar
ysector
usesrawmater
ial
sfrom t
hepri
mar ysectorandter
ti
arysect
orpr
ovi
desbackup
servi
cesf
orbot
hprimaryandsecondarysector
s

I
ndust
ri
ali
zat
ion

• Iti
sthegr owt
hoft her
elati
veimpor
tanceoft
hesecondar
ysect
or or
act
ivi
tyoverpr
imar
yacti
vit
iesint
hecountr
y

• Thismightmeanmassproducti
onatlar
geandt hiscanr
efert
othe
expansi
onorgr
owt
hofi
ndustr
iesandi
ndust
ri
alser
vices.

Benef
it
s

• Tot
alnat
ionalout
puti
ncr
easesandt
hisr
aisesaver
agest
andar
dsof
l
ivi
ng.

• Incr
easesoutputofgoodsandcanr
esul
tinl
oweri
mpor
tsandhi
gher
export
sofsuchproduct
s.

• Expandi
ngmanuf
act
uri
ngbusi
nesswi
llr
esul
tinmor
ejobsbei
ngcr
eat
ed.

• Expandi
ngandmor
epr
ofi
tabl
efi
rmspaymor
etaxt
othegover
nment
.

• Valueisaddedt
ot hecountr
y’sout
putofraw mat
eri
als,r
athert
hanj
ust
export
ingt
hesebasicunpr
ocessedproduct
s.

• I
tmayr
esul
tineconomi
cgr
owt
h.

Pr
obl
ems

• The chances ofwor

ki n manufact
uri
ng encourages r
uralto ur
ban
migr
ati
onwhi chcanl
eadtoover
crowding,housi
ngandsocialprobl
ems
i
ntowns.

• Import
sofr
aw mat
eri
alsar
eof
tenneededandt
heyi
ncr
easei
mpor
t
cost
s.

• Muchoft hegrowthisduetomulti
nationalcompani
eswhi
chhavesome
consequencessuchasl abourexploi
tati
on,dumpingofi
nfer
iorgoods
andoverexploi
tat
ionofnat
uralr
esources

De-
Indust
ri
ali
zat
ion

• I
sadecl
inei
nthei
mpor
tanceoft
hesecondar
ysect
oract
ivi
ti
esandt
he
 gr
owt
hoft
ert
iar
ysect
oract
ivi
ti
es?

Reasonsf
orde-
indust
ri
ali
zat
ioni
ncl
ude:

• Risi
ng income associated with higher li
ving st
andards l
eads to
consumersspendi
ngmor eofthei
rextraincomeonser vi
cesrat
herthan
goods.Afeat
ureofdevelopedcountr
ies.

• As t
he r estofthe wor l
dindust
ri
ali
zes,manuf
actur
ing f
ir
ms face
competi
ti
onandr i
singimport
sbydomest i
cfi
rmstakesawaymarkets
fr
om secondar
ysectorf
ir
ms.

TypesofPr
ivat
eSect
orOr
gani
sat
ions

1.Sol
eTr
ader
s

• Abusinessinwhichonepersonprovi
destheper
manentf
inanceandin
r
etur
nhasf ul
lcontr
oloft
hebusi
nessandisabl
etokeepal
lthepr
ofi
ts.

• Theper
sonusual
l
ytr
adesunderhi
sownname.

• Theyarecommoni nindust
ri
essuchasf
armi
ng,hai
rdr
essi
ng,wi
ndow
cl
eani
ngandret
ail
ing.

Advant
agesofSol
eTr
ader
s

• Easyt
osetupandnol
egalf
ormal
it
iesr
equi
red

• Ownerhascompl
etecont
rol
,notanswer
abl
etoanybodyel
se.

• Ownerkeepsal
lpr
ofi
ts.

• Abl
etochooset
imesandpat
ter
nsofwor
k.

• Abl
etoest
abl
ishcl
oseper
sonalr
elat
ionshi
pwi
thst
affandcust
omer
s.

• Deci
sionsar
emadequi
ckl
yandnotconsul
tat
ive.

• Theyar
eli
kel
ytor
ecei
veassi
stancef
rom t
hegover
nment
.

• Payl
it
tl
eornot
axt
othegover
nment
.

• Canhavef
lexi
bleandconveni
entwor
kinghour
s.

Di
sadvant
agesofSol
eTr
ader
s

• Unl
imi
tedl
iabi
li
ty–Al
lofowner
’sasset
sar
epot
ent
ial
lyatr
isk.
 • Of
tenf
acesi
ntensecompet
it
ionf
rom bi
ggerf
ir
ms.

• I
tmaybedi
ff
icul
ttor
aisef
inancet
oexpandt
hebusi
ness.

• Sincecapi
tali
sobtai
nedf
rom per
sonalsavi
ngs,borr
owi
ngandpl
oughi
ng
backprofi
ts,t
hef
ir
m hasnoaccesstolar
gercapit
almar
ket
s.

• Thebusinessdependsheavi l
yupont heowner’
sabi
li
ty.Hecannotbe
j
ackofalltrades,f
orexample,hecanbeskil
ledi
nmechani
csf
orallcar
s
butf
indsitdiff
icul
ttocopewit
haccounts.

• I
ftheowneri
sil
l,
diesornotf
it
,thebusi
nessl
ackscont
inui
ty.

• Sol
etr
ader
sof
tenover
wor
kthemsel
ves.

• Havenoonet
oshar
eideaswi
thandsuf
fer
sal
lthel
osses.

2.Par
tner
shi
ps

• A par
tner
shipisl
egal
l
ydefi
nedastwoormoreper
sonscar
ryi
ngon
busi
nessincommonwit
havi
ewofpr
ofi
tmaki
ng.

• Itcanbedefinedasbusi
nessfor
medbytwoormor
epeopl
etocar
ryona
businesstogetherwi
thshar
edcapi
tali
nvest
ment
sandusual
lyshar
ed
responsi
bil
it
ies.

• Part
ner
shi
ps have a l
egalmaxi
mum of20 peopl
e,t
heyr
equi
ref
ew
document
s.

• I
tisanuni
ncor
por
atedbusi
nessandpar
tner
shaveunl
imi
tedl
iabi
li
ty.

• Thepart
nershi
pagr
eementdoesnotcr
eat
easeparateuni
t;apart
ner
ship
i
sjustagroupofi
ndivi
dual
sfor
medtoovercomesomeofthedrawbacks
ofsol
etrader
s.

• Error
s and deci
sions of each par
tner ar
e consi
der
ed t
o be t
he
responsi
bil
it
yoft
hem al
l.

• Apar
tner
shi
pdeedi
sof
tendr
awnandl
ikel
ycover
smat
ter
ssuchas:

• Theamountofcapi
talt
obecont
ri
but
edbyeachpar
tner
.

• Pr
opor
ti
onsi
nwhi
chpr
ofi
tandl
osseswi
llbeshar
ed.

• Managementr
esponsi
bil
it
iesofeachpar
tner
.
 • Maxi
mum dr
awi
ngsofcashbyeachpar
tner
.

• Ter
msunderwhi
cht
hepar
tner
shi
pwi
llbet
ermi
nat
ed.

• Vot
ingr
ight
s.

Advant
agesofPar
tner
shi
ps

• Par
tner
smayspeci
ali
zei
ndi
ff
erentar
easofbusi
nessmanagement
.

• Shar
eddeci
sionmaki
ng.

• Canr
aisemor
ecapi
talt
hrougheachpar
tner
’scont
ri
but
ion.

• Par
tner
sshar
ethel
osses.

• Gr
eat
erpr
ivacyandf
ewerf
ormal
it
iest
hancor
por
ateor
gani
sat
ions.

Di
sadvant
agesofPar
tner
shi
ps

• Unl
imi
tedl
iabi
li
tyf
oral
lpar
tner
s(wi
thexcept
ionofl
imi
tedpar
tner
shi
ps)
.

• Lackofconti
nuit
y.Thepar
tner
shi
pwi
llhavet
ober
efor
medi
ntheevent
ofonepart
ner’
sdeath.

• Al
lpar
tner
sar
eboundbydeci
sionsofanyoneoft
hem.

• Cannotr
aisecapi
talf
rom sel
li
ngshar
es.

• Lossofi
ndependencei
ndeci
sionmaki
ngasi
nsol
etr
ader
s.

• Theyshar
epr
ofi
ts.

• Conf
li
ctsmayar
ise.

• Deci
sionmaki
ngi
sconsul
tat
iveandi
sti
meconsumi
ng.

3.Li
mit
edCompani
es

• Sol
etr
adersandpart
nershi
psareunincorpor
atedbusinessesandhave
somedi
ff
erencesf
rom compani
es,
“incor
porat
edbusinesses”i
ncludi
ng:

3.
1.Li
mit
edl
iabi
li
ty

• Ownershi
pofcompaniesi
sdivi
dedi
ntosmal
luni
tscall
edshar
es.Peopl
e
canbuytheseandbecomeshar
ehol
ders(
par
towners)oft
hebusi
ness.

• I
ndi
vidual
swi
thl
argebl
ocksofshar
es,f
orexampl
e,50% of
tenbecome
 di
rect
orsoft
hebusi
ness.Al
lshar
ehol
der
sbenef
itf
rom l
imi
tedl
iabi
li
ty.

• Theonlyli
abi
li
tyorpot
ent
iallosst
hecompanyhasi fitfai
lsisthe
amounti
nvest
edint
hecompanynott
heweal
thoft
hesharehol
ders.

• Nobody makes any f

urt
herclaims t
ot he shar
ehol
der
s shoul
dthe
companyfai
l.Thi
shastwoimport
antef
fect
s:

• People ar
e pr
epar
ed t
o pr
ovi
de f
inance t
o enabl
e compani
es t
o
expand.

• Thegreaterri
skofthecompanyfai
li
ng to payitsdebt
sisnow
tr
ansf
err
edf r
om t
hei
nvest
orst
othecredi
tor
s( l
ender
swhohavenot
beenpai
d).

3.
2.LegalPer
sonal
it
y

• Acompanyi sr ecogni
zedinlaw ashavi
nglegali
denti
tysepar
atefrom
thatofi
tsowners,forexampl
e,i
ft hef
oodsol
dbyacompanyi sfoundto
bedangerous,
thecompanyi t
selfcanbet
akentocour
t,nott
heowners.A
companycanbesuedorsuet hr
oughthecour
ts.

3.
3.Cont
inui
ty

• Inacompany,t hedeat
hofanownerordi rectordoesnotleadtoi
ts
dissol
uti
on.Owner
shi
pcont
inuest
hroughi
nheri
tanceoftheshar
es.

4.Pr
ivat
eLi
mit
edCompani
es

• Asmal ltomedium si
zedbusi
nesst
hati sownedbysharehol
derswho
areoft
enmember softhesamefami
ly.Thi
scompanycannotsel
lshar
es
tothegener
alpubl
ic.

• Limit
edcompani esar
esometi
mescal
ledj
ointst
ockcompani
esbecause
thei
rstockorsharesi
shel
djoi
ntl
ybyanumberofpeopl
e.

• Pr
ivat
eli
mit
edcompani
eshavear
est
ri
cti
onont
hesal
eofshar
es.

• I
tcannotadver
ti
sei
tsshar
esf
orsal
eont
hest
ockexchange.

• Shar
eholders have l
imi
ted l
iabi
li
ty and busi
ness account
s ar
e not
publ
ished.

• Exist
ingshar
eholder
scanonl
ysel
lthei
rshar
eswi
tht
heagr
eementoft
he
othershar
eholder
s.
Advant
agesofPr
ivat
eLi
mit
edCompani
es

• Shar
ehol
der
shavel
imi
tedl
iabi
li
ty.

• Separ
atel
egalper
sonal
it
ies.

• Cont
inui
tyi
ntheeventoft
hedeat
hofashar
ehol
der
.

• Or
igi
nalowneri
sst
il
lof
tenabl
etor
etai
ncont
rol
.

• Abl
etor
aisecapi
talf
rom t
hesal
eofshar
est
ofami
lyandf
ri
ends.

• Gr
eat
erst
atust
hananuni
ncor
por
atedor
gani
sat
ion.

• Manyprivateli
mitedcompani
esar
elar
geenought
oobt
ainbenef
it
sof
l
argescaleproducti
ons.

• Ther
eisnomi
nimum aut
hor
izedcapi
tal
.

• Account
sar
elesscompl
icat
edt
hant
hoseofpubl
icl
imi
ted.

• Iti
s possi
bletor est
ri
cttransferofshar
es,forexampl
e,pr
eser
ve
owner
shi
pbyf ami
lyandaccountscanr
emainpr
ivat
e.

Di
sadvant
agesofPr
ivat
eLi
mit
edCompani
es

• Ther
ear
ecompl
exl
egalf
ormal
it
iesi
nest
abl
ishi
ngt
hebusi
ness.

• Shar
escannotbesol
dtot
hegener
alpubl
ic.

• I
tmaybedi ffi
cul
tforshar
ehol
der
stosel
lthei
rshar
esandgett
hei
r
i
nvest
mentback.

• Endofyearaccount
smustbesentt
ocompanyavai
labl
eforpubl
ic
i
nspect
ion.

5.Publ
icLi
mit
edCompani
es

• Canber
ecogni
zedbyt
heuseofPLCorI
nc.

• Oft
enal ar
gebusinesswit
hlegalr
ightstosellsharest
othegener
al
publ
ic,
shar
epr
icesarequot
edonthestockexchange.

• Theyhavealladvant
agesofpr i
vat
elimi
tedcompaniespl
ust
her
ightt
o
sel
lshar
estothegeneralpubl
iconthest
ockexchange.

• Exi
sti
ngshar
ehol
der
smayqui
ckl
ysel
lthei
rshar
esi
ftheywantt
o.Thi
s
 f
lexi
bil
it
yofsel
li
ngshar
esencour
agest
hepubl
ict
obuyt
heshar
es.

• MostPLCshar
ehol
der
sdonott akepar
tint
hemanagementoft
hef
ir
m
whi
chisr
unbyaboardofdi
rect
orsel
ect
edbyshar
ehol
der
s.

Advant
agesofPubl
icLi
mit
edCompani
es

• Li
mit
edl
iabi
li
ty.

• Separ
atel
egali
dent
it
y.

• Cont
inui
ty.

• Easybuyi
ngandsel
li
ngofshar
esf
orshar
ehol
der
s.Thi
sencour
ages
i
nvest
ment.

• Accessto substant
ialsour
cesoff i
nanceduetheabi
li
tyt
oissuea
pr
ospect
ust othepubli
candoff
ersharesf
orsal
e.

• Theybenef
itf
rom economi
esofscal
e.

Di
sadvant
agesofPubl
icLi
mit
edCompani
es

• Asalargefi
rm,t
hecompanymayseem i
mper
sonalt
ocust
omer
sand
empl
oyees.

• Theyar
evul
ner
abl
etot
akeover
s.

• Because oft hei

rsi ze,they make di
seconomi
es ofscal
e such as
deci
sionstaki
ngal ongtimetomake.

• Legalf
ormal
it
iesi
nfor
mat
ion.

• Cost
sofbusi
nessconsul
tant
sandf
inanci
aladvi
sor
swhencr
eat
ingsuch
acompany.

• Shar
epr
icessubj
ectt
ofl
uct
uat
ions.

• Di
rect
orsi
nfl
uencedbyshor
t-
ter
m obj
ect
ivesofmaj
ori
nvest
ors.

• Ther
eisdi
vor
cebet
weenowner
shi
pandcont
rol
.

Di
ff
erencebet
weenPubl
icLi
mit
edCompani
esandPr
ivat
eLi
mit
edCompani
es

• Ori
ginalownersofaprivatel
imi
tedcompanyar
eablet
or et
ainamajori
ty
ofsharesandst i
llconti
nuetoexerci
semanagementcontr
ol;however
,
thi
sisunlikel
ywithPubl i
cLimit
edCompaniesduetosheervolumeof
 shares issued.Ther
ei s di
vor
ce between owner
shi
p and cont
rol
.
Shareholdersownthecompanybutappoi
ntaboardofdir
ect
orstorun
thebusiness.

• Privat
eli
mit
edcompaniessellsharestopr
ivat
ei ndi
vidual
s,forexampl
e,
fr
iends and f
amil
y,wher eas publ
iclimi
ted compani es can i
ssue a
prospect
usandsel
lsharestothepubli
c.

• Inprivat
elimi
tedcompanies,sharehol
derssellt
hei
rshar esonl
yaft
eran
agreementbyot hershar
eholders,whereasinpubl
icl i
mi t
edcompani
es
thereisfl
exi
bil
it
yinter
msofshar epurchasesandsales.

• Pri
vat
elimi
ted companies enj
oy conf
ident
ial
it
y,whi
le publ
icl
imi
ted
compani
esdiscl
oseal
lit
saccountspubl
icl
y.

Regi
str
ati
onofJoi
ntSt
ockCompani
es

• Whenajoi
ntst
ockcompanyi sest
ablished,cer
tai
ndocument
smustbe
submi
tt
edt
otheregi
str
arofcompanies.

1.Memor
andum ofAssoci
ati
on

• This governs t
he fi
rm’s ext
ernalrel
ati
onship wit
h otherpeopl
e and
organisat
ions and provi
des the worl
d atl arge wit
h cert
ain basi
c
i
nformat i
onaboutthecompany.Itcont
ainsseverali
tems:

• Nameofcompany.

• Addr
essoft
her
egi
ster
edof
fi
ce.

• Obj
ecti
vesclause.Thisst
atest hetypeofbusinessi n whi
ch t
he
companywi
llbeinvol
vedi
n,forexample,
ret
ail
ingorbui
ldi
ngservi
ces.

• Limi
tati
oncl
ause.Thi
sisast
atementt
hatshar
ehol
der
shavel
imi
ted
l
iabi
li
ty.

• Capi
talcl
ause.

2.Ar
ti
clesofAssoci
ati
on

• Thesear
erul
esgover
ningt
hei
nter
nalaf
fai
rsoft
hecompany.

• I
tcover
smat
ter
ssuchas:

• Vot
ingr
ight
sofshar
ehol
der
s.
 • El
ect
ionofdi
rect
ors.

• Buyi
ngandsel
li
ngofshar
es.

• Payment
sofdi
vidends.

• Det
ail
edpr
ocedur
est
obef
oll
owedatmeet
ings.

3.St
atut
oryDecl
arat
ion

• Thisis a st
atementthatthe company has been setup withi
nthe
regul
ati
onsofthecompaniesact.I
tissentt
ot her
egist
rarofcompani
es
alongwit
hthememorandum andarticl
esofassoci
ati
on.

4.Cer
ti
fi
cat
eofI
ncor
por
ati
on

• Thi
sisissuedbytheregi
str
arofcompani
esandisnecessar
ybef
oret
he
companystar
tst
radi
ng.Iti
sthecompany’
s“bi
rt
hcert
if
icat
e”.

• A pri
vat
elimi
tedcompanycanst
arti
mmedi
atel
yuponr
ecei
ptoft
he
cer
ti
fi
cateofi
ncor
por
ati
on.

5.Cer
ti
fi
cat
eofTr
adi
ng

• Iti
salsoissuedbyt heregi
str
arandmustbeobt ai
nedbyapubl icli
mited
companybef or
ei tcanstar
toperat
ing.Toobt
ainthisdocument,thePLC
musthaver ai
sedami nimum amountofcapit
althr
oughsel l
ingsharesto
thegener
alpublic.Thi
sistoensurethatt
hecompanywi llhavesuff
ici
ent
fundstot
rade.

Ot
herFor
msofBusi
nessOr
gani
sat
ions

1.Cooper
ati
ves

Feat
uresofcooper
ati
ves:

• Al
lmember scancontribut
etother unni
ngofthebusi
ness,shar
ingt
he
workl
oad,
responsi
bil
it
iesanddeci
sionmaking.

• Al
lmember
shaveonevot
eati
mpor
tantmeet
ings.

• Pr
ofi
tsar
eshar
edequal
lyamongmember
s.

• Shar
eskeept
hesameval
ue.

Advant
agesofCooper
ati
ves
 • Bul
kbuyi
ng.

• Wor
kingt
oget
hert
osol
vepr
obl
emsandmakedeci
sions.

• Goodmoti
vati
onofal
lmember
stowor
khar
dast
heywi
llbenef
itf
rom
shar
edpr
ofi
ts.

Di
sadvant
agesofCooper
ati
ves

• Poormanagementski
ll
sunl
esspr
ofessi
onalmanager
sar
ehi
red.

• Capit
alshor
tagesbecausether
eisnosal
eofshar
est
onon-
member
s,
thati
s,t
hegeneralpubl
ic.

• Sl
owdeci
sionmaki
ngsi
nceal
lmember
sar
etobeconsul
ted.

2.Fr
anchi
ses

• Afranchiseisabusinessthatusesthename,l
ogoandt
radi
ngsyst
ems
ofanexisti
ngsuccessfulbusi
ness.

• I
tisal
egalcont
ractbet
weent
wof
ir
ms.

• I
tall
owsonefir
m,thefr
anchiseeto usename,l
ogo and mar
ket
ing
met
hodsoft
heot
herf
ir
m,t
hefranchi
ser.

Benef
it
sofOpeni
ngFr
anchi
sedBusi
nesses

• Fewerchancesofnew busi
nessesf
ail
i
ng,asest
abl
ishedbr
andsand
product
sar
eused.

• Advi
ceandt
rai
ningof
fer
edbyt
hef
ranchi
ser
.

• Nat
ionaladver
ti
sement
spai
dforbyt
hef
ranchi
ser
.

• Suppl
iesobt
ainedf
rom est
abl
ishedandqual
it
y-checkedsuppl
ier
s.

• Fr
anchi
seragr
eesnott
oopenanot
herbr
anchi
nthel
ocalar
ea.

Li
mit
ati
onsofFr
anchi
sedBusi
nesses

• Shareofpr
ofi
tsorsal
esr
evenuehast
obepai
dtot
hef
ranchi
sereach
year
.

• I
nit
ialf
ranchi
sel
icensef
eecanbeexpensi
ve.

• Localpr
omot
ionsmayst
il
lhavet
obepai
dforbyt
hef
ranchi
see.
 • Nochoi
ceofsuppl
iesorsuppl
ier
stobeused.

• St
ri
ctrules,
overpr
ici
ngandl
ayoutofout
let
sreduceowner
’scont
rolover
hi
sbusiness.

3.Joi
ntVent
ures

• Twoormor ebusi
nessesagreet
owor kclosel
ytoget
heronapar
ti
cul
ar
pr
ojectandcr
eat
easeparat
ebusinessdi
visi
ontodoso.

• Theyar
enott
hesameasamer
gerbutt
heycanl
eadt
omer
ger
s.

Reasonsf
orJoi
ntVent
ures

• Costsandr i
sksofanew businessvent
urear
eshared.Thi
si samajor
consi
derat
ionwhenthecostofdevel
opi
ngnewproduct
sisri
singr
api
dly.

• Di
ff
erentcompaniesmighthavedi
ff
erentst
rengt
hsandexper
iencesand
t
heytheref
oref
itwellt
oget
her.

• Theymighthavethei
rmajormar ket
sindif
fer
entcountr
iesandt
heycoul
d
expl
oitthese wit
h new products more ef
fect
ivel
ythan ift
hey bot
h
deci
dedtogof ori
tonthei
rown.

Dr
awbacksofJoi
ntVent
ures

• Styl
eofmanagementandcul
tur
emi
ghtbesodi
ff
erentt
hatt
het
wo
teamsbl
endwel
ltoget
her
.

• Er
ror
sandmi
stakesmi
ghtl
eadt
oonebl
ami
ngt
heot
herf
ormi
stakes.

• Thebusi
nessf
ail
ureofoneoft
hepar
tner
scoul
dputt
hewhol
epr
ojectat
ri
sk.

4.Hol
dingCompani
es

• Itis a busi
ness organisat
ion t
hatowns and cont
rol
s a numberof
separ
atebusinesses,butdoesnotuni
tet
hem i
ntooneunif
iedcompany.

• Of
tent
hesepar
atebusi
nessesar
eindi
ff
erentmar
ket
s.

• Keepi
ngt hebusinessessepar
atemeanst
heyar
eindependentofeach
ot
herfordeci
sionsorpoli
cychanges.

5.Publ
icSect
orEnt
erpr
ises(
Publ
icCor
por
ati
ons)

Publ
icCor
por
ati
on
 • Isabusi
nessenter
pri
seownedandcont
rol
ledbyt
hest
ate.Theyar
eal
so
knownasnati
onali
sedindust
ri
es.

• Publ
icsect
oror
gani
sat
ionsdonotof
tenhavepr
ofi
tasamaj
orobj
ect
ive.

• Thei
rproduct
smi ghtber
egar
dedasst
rat
egi
cint
hatt
heyar
evi
talt
othe
peopl
eintheeconomy.

Nat
ional
izat
ion

• Thi
sisapr
ocessofconver
ti
ngpr
ivat
ely-
ownedent
erpr
isest
ost
ate-
owned.

Ar
gument
sforNat
ional
izat
ion

• Theymayprovi
desoci al
lyimport
antser
vicessuchasrur
alrai
lwayli
nes
and post
alser
vices which mightnotbe suppli
ed by a pr
ivat
efir
m
becauset
heyar
eunpr ofi
tabl
e.

• Some industri
es are nat
uralmonopol
i
es.Itmay notbe fi
nanci
all
y
worthwhil
eforonef ir
mt oprovi
deaservi
cesuchaswater
.Theref
ore
nat
ionali
sati
onreducesmonopoly

• Many i ndust
ri
es requi
reinvest
mentsin expensi
ve equi
pment and
technol
ogy.Apr i
vat
efir
m mightbeunwi
ll
ingt
orisksuchalar
gesum of
capit
al.

• Thegover
nmentshoul
dcont
rolt
heeconomyonbehal
foft
heci
ti
zens.

• Managedwi
thasoci
alobj
ect
iver
athert
hanpr
ofi
t.

• Lossmaking ser
vicesmi
ghtst
il
lbekepti
fsoci
albenef
it
sar
egr
eat
enough.

• Fi
nancei
srai
sedmai
nlyf
rom t
hegover
nment
.

Ar
gument
sagai
nstNat
ional
izat
ion

• Tendencyt
owar
dsi
nef
fi
ciencyduet
olackofst
ri
ctpr
ofi
ttar
get
s.

• Subsi
diesf
rom t
hegover
nmentmayencour
agei
nef
fi
ciency.

• Gover
nmentmayint
erf
ereinbusinessdeci
sionsforpol
it
icalr
easons,
for
exampl
e,openi
nganewbranchinacertai
nar eat
ogainpopulari
ty.

• Theyi
slackofcompet
it
ionandi
tisdi
ff
icul
ttoassessor
gani
zat
ional
 ef
fi
ciency

• Resour
cesmaybewast
edduet
opoorqual
it
yser
vices

• I
tcr
eat
esadependencysyndr
ome

• I
tincr
easegover
nmentspendi
ng

• Someunpr ofi
tabl
eor gani
sat
ion maycont
inuet
o oper
atedespi
tet
he
shoddyser
vicestheyoffer

Pr
ivat
isat
ion

• Sel
li
ngofst
ate-
ownedorst
atecont
rol
ledbusi
nessest
oinvest
orsi
nthe
pri
vat
esect
or.

• Itmeansswi
tchi
ngpr oduct
ionofgoodsandser
vicesf
rom t
hepubl
ic
sect
ortot
hepri
vatesector
.

FourMet
hodsofPr
ivat
isat
ion

• Denati
onal
izat
ion–Sel
li
nggover
nment
-ownedent
erpr
isest
othepr
ivat
e
sect
or.

• Deregul
ati
on–Removi ngst
atutor
ymonopol
ies,f
orexampl
e,abol
ishi
ng
rest
ri
cti
onuponbusi
nessser
vices.

• Contract
ingout–Al lowingpri
vatef
irmstobidforthesupplyofpubl
ic
ser
vices,forexampl
e,hospit
alcl
eani
ng,andr
efusecoll
ect
ion.

• Marketi
zat
ion-Theshifti
ngofservicesint
othemar ketsectorwhichwere
hit
hert
o/pr
eviously provided by the publi
c sector so t hat pri
vat
e
part
ici
pant
s/playerscanal sooffersuchservices,e.g.healthservi
ces,
educati
onandsecur i
ty,amongothers.x

Ar
gument
sforPr
ivat
izat
ion

• Theprofi
tmotiveoft
hepri
vat
esect
orbusinesswi
lll
eadtomuchgr
eat
er
ef
fi
ciencythanwhenabusi
nessi
ssubsi
dizedbythegover
nment
.

• Deci
sionmaki
ngi
nst
ate-
ownedbusi
nessmaybesl
owandbur
eaucr
ati
c.

• Pri
vatisat
ionputstheresponsi
bil
it
yofsuccessf irmlyint
hehandsof
manager sandstaf
fwhowor kint
heor gani
sat
ion.Thiscanl
eadtost
rong
motivati
onast heyhaveadi r
ectinvol
vementint heworkthatt
heydo.
Thereisagreat
ersenseofempower ment.
 • Marketforceswi l
lbeall
owedtooperat
e,fai
li
ngbusinesseswil
lbeforced
tochangeordi eandsuccessfuloneswi l
lexpand,unconstrai
nedby
government l i
mits on growt
h. Profi
ts of most of t he pri
vat
ized
businessesincreasef
oll
owingthei
rsel
l-
off.

• Thereis always a tempt ati

on f
orgover nmentt or un stat
e-owned
i
ndustr
iesforpol
it
icalreasonsorasameansofi nfl
uencingthenational
economy,f
orexampl e,keepingel
ectr
icit
ypricesar
ti
fi
ciall
ylow,decisi
on
makingmaynotbet akenforcommer cialr
easons.

• Sal
eofnational
isedindustr
iescanrai
sef
inancef
orgover
nment
,whi
ch
canbeusedforotherstat
epr oj
ect
s.

• Pr
ivat
ebusi
nesseswi
llhaveaccesstopri
vat
ecapit
almar
ket
sandt
his
wi
lll
eadt
oincr
easedi
nvestment
sinthesei
ndust
ri
es.

• Bett
erquali
tyisproduced.Duetogreatercompeti
ti
on,producer
swi
ll
havetocont
inual
lyi
mprovethei
rpr
oductstofi
ghtcompet
it
ion

• I
treducesgover
nmentspendi
ng

• Ital
soincr
easerevenuet
hrought
hepaymentoft
axessuchasPAYEE
andcor
poratet
ax.

Ar
gument
sagai
nstPr
ivat
izat
ion

• The stat
e shouldtake decisions aboutessentiali ndustr
ies.These
deci
sionscanbebasedont hesociety’
sneedsandnotj usttheint
erestof
shar
eholder
s.This may involve keeping on businesses thatpr i
vate
companiesmightconsi
derunprofit
able.

• Withcompet i
ngpri
vat
elyrunbusi
nesses,itwillbemuchmor edif
fi
cul
tto
achieveacoherentandcoordi
natedpol i
cyf orthebenef
itofthewhole
country,
forexampl
e,r
ail
waysystem,electr
icalgri
d.

• Throughstateowner
shi
p,anindust
rycanbemadeaccount abl
etot he
countr
y.Thi sis by means of a r
esponsi
ble mi
nist
er and di
rect
accountabi
li
tyt
othepar
li
ament
.

• Manyst r
ategi
cindust
ri
escoul
dbeoper atedas“pr
ivat
emonopol
ies”i
f
pr
ivat
isedandtheycoul
dexpl
oitconsumer
swithhi
ghprices.

• Br
eakingupnati
onal
isedindustri
es,per
hapsi
ntosever
alcompeti
ngunit
s,
wi
llr
educetheoppor
tunit
yf orcostsavi
ngthr
ougheconomiesofscal
e.
 • Thegover
nmentmightl
osscont
roli
ntheeconomyi
fmostoft
hef
act
ors
ofpr
oduct
ionar
einthepri
vat
ehands

• Thereis a dangerofr
esour
ces wast
age f
ort
he benef
itoff
ewer
i
ndivi
dual
s

• Cer
tai
nservi
cest
hathavebeenprovi
dedbythestat
esuchaseducat
ion
andsecur
it
ymaynotbeprovi
dedbyprivat
efi
rms

• I
tmayr
esul
tinhi
ghl
evelunempl
oyment

Fact
orsofPr
oduct
ion

• Areresour
cesneededbyabusi
nesst
opr
oducegoodsandser
vices.
Theseare:

• Land – Thi
sincl
udesrenewableand non-
renewabl
eresourcesof
natur
esuchascoal
,cr
udeoilandti
mber
.Ther ewar
dforl
andisrent
.

• Labour–Manuall
aborandskil
ledlabormakeupthewor
kfor
ceoft
he
busi
ness.Ther
ewardf
orlabourissalar
yorwages

• Capi
tal–Thi sisnotjustt
hef i
nanceneededt osetupabusinessand
payforitscontinuingoperati
ons,butalsotheman-mader esour
ces
usedinproduction.Theseincludecapit
algoodssuchascomput ers,
machines,f
actoriesandvehicl
es.Therewardforcapi
tali
sint
erest

• Enterpri
se– Thi sisthedr i
ving forcepr ovi
ded bytherisk-
taki
ng
i
ndividual
st hatcombi
nestheot herfactorsofpr
oducti
onintoauni t
capableofpr oduci
nggoodsandser vices.Itpr
ovidesamanagi ng,
decisi
onmaki ngandcoordinatingr ol
e.Ther ewardforent
erpri
seis
profi
torloss.

Busi
nessObj
ect
ives

• Thesearecl
eari
deasofwhatthebusi
nessist
ryi
ngt
oachieve.Theyar
e
setgoal
sandpri
nci
plest
hatabusi
nessseekst
oachi
eve.

• Obj
ect
ivesshoul
dfol
lowt
heSMARTcr
it
eri
on.

• Speci
fic– Obj
ecti
vesshoul
dfocusonwhatt hebusinessdoesand
shoul
dapplydir
ectl
ytothebusi
ness,f
orexample,ahotelmayhave
anobject
iveof15% bedoccupancyoverthewinterperi
od.Thi
sis
speci
fi
ctothebusi
ness.
 • Measurabl
e–Objecti
vesthathaveaquant
it
ati
vevaluearelikel
yto
pr
ove to be more ef
fect
ive t
arget
sfor di
rect
ors,for example,
i
ncreasi
ngsal
esby20%.

• Achievable–Sett
ingobj
ectivest
hatareal
mosti
mpossibl
einthetime
framegivenwil
lbepoint
lessastheycandemoti
vat
ethestaf
ftryi
ngto
reachthetar
get
s.

• Reali
sti
c and Rel evant – Obj ecti
ves should be r
eali
sti
c when
comparedtot her esourcesofthecompanyandshoul dbeexpr essed
i
nt er
msofr elevancet ot hepeoplecarryi
ngthem out
,forexampl e,
i
nformingaf act orycleanerabouti ncr
easingmarketshareswillbe
i
rrel
evantbuttargetofcl eani
ngmat eri
alusage.

• TimeSpeci fi
c– A t i
melimitshoul
dbesetwhenanobject
ivesis
establ
ished.Withouta ti
me li
mititwil
lbe i
mpossi
blet
o assess
whethertheobject
ivehasact
uall
ybeenmet.

Obj
ect
ivescanbest
rat
egi
cort
act
ical
.

1.St
rat
egi
cObj
ect
ives

• Theystat
einbroadt er
mswhatthefir
m woul
dli
ket
odoint
hel
ongr
un,
forexample,i
ncreaseannualprof
it
sby10% ever
yyearf
ort
henext
5year
s.

2.Tact
icalObj
ect
ives

• Ar
edesi
gnedtoensurethatthest
rat
egi
cobj
ect
ivesar
ereached.They
ar
emoredet
ail
edandshort
-t
erm.

Cor
por
ateAi
ms

• Thesearever
ylong-
term goal
swhichabusinesshopestoachi
eve.The
coreofabusi
nessacti
vit
yisexpr
essedi
nit
scor por
ateai
msandplans.

Mi
ssi
onSt
atement

• A st
atementofabusinesscoreaimsphrased i
n awayt
omot
ivat
e
employeesandt
ost
imulat
eint
erest
sbyout
sidegr
oups.

CommonBusi
nessObj
ect
ives

1.Pr
ofi
tMaxi
mizat
ion
 • Allstakehol
dersin abusi nessar ewor king f
orar eward.Profi
tsare
essenti
alforrewar
dinginvestor
sandf orfinanci
ngfurt
hergrowth.Prof
it
s
arenecessarytopersuadeowner sandinvestorstot
akerisks.Fi
rmsseek
towidenthegapbet weentotalsalesr
evenueandcost s.

Li
mit
ati
onsofpr
ofi
tmaxi
misi
ngasanai
m onbusi
ness

• Focusonhighshortt
erm prof
it
smayencour agecompeti
tiont
oent
ert
he
marketandj
eopardi
zethelongter
m sur
vivaloft
hebusiness.

• Mostanalystsassesstheperf
ormanceofabusi
nesst
hroughr
etur
non
capi
talemployedrat
herthanpr
ofi
ts.

2.Gr
owt
h

• Largerfi
rmswi l
llessl
ikelyt
obet akenoverandshoul dbeablet
obenefi
t
fr
om economi esofscal e.Manager swil
lbemot ivat
edbyt hedesi
reto
seet hebusinessachieveitsfullpotenti
alf r
om whichtheymaygai n
highersalar
iesand fringebenefits.Businessthatgrowsencourages
i
nvest or
sandpr ovi
desjobsecuri
ty.

Li
mit
ati
onsofGr
owt
htoBusi
ness

• Expansi
ont
hati
stoor
api
dcanl
eadt
ocashf
lowpr
obl
ems.

• Sal
esgr
owt
hmi
ghtbeachi
evedatt
heexpenseofl
owerpr
ofi
tmar
gins.

• Lar
gebusi
nessescanexper
iencedi
seconomi
esofscal
e.

• Usingprof
it
st ofi
nancegrowth,“r
etai
nedear
nings”
,canl
eadt
olower
short
-t
ermretur
nstoshar
eholder
s.

• Growthintonewbusinessar
easandacti
vit
iesawayfrom t
hef
ir
m’scor
e
acti
vit
ies can r
esul
tinal oss off
ocus and di
rect
ion f
ort
he whol
e
organi
sati
on.

3.I
ncr
easi
ngMar
ketShar
e

• Cl
osel
yli
nkedt
oover
allbusi
nessgr
owt
h.

• I
ncr
easingmarketshar
eindicat
esthatthemarket
ingmixoft
hebusi
ness
i
sprovi
ngtobemor eeff
ici
entthanthatofi
tscompeti
tor
s.

• Thishasthebenefi
tthatr
etai
ler
swi
llbekeent
ost
ockandpr
omot
ethe
best-
sel
li
ngbrand.
 • Prof
itmargi
nsoff
eredtor
etai
lersmaybel owerthancompet
ingbrands
astheshopsar
ekeentost
ockit.Thi
sleavesmoreprof
itf
ort
heproducer
.

Li
mit
ati
onst
oIncr
easi
ngMar
ketShar
e

• I
tdependsont hesizeoft
hemar ketatl
arge.I
fthemar
keti
ssmal
liti
s
r
elat
ivel
ydi
ff
icultt
oincr
easeshar
esheld.

4.Sur
vival

• Iti
sl i
kelytobethekeyobj ect
iveofnew busi
nessstar
t-
ups.Thehigh
fai
lur
er ateofnew busi
nessesmeanst hattosurvi
veforthefi
rstt
wo
yearsoftradi
ngi
sanimportantaim.

5.Pr
ofi
tSat
isf
ici
ng

• Thi
smeansai mingt
oachieveenoughprof
itt
okeeptheownershappy
butnotai
mingtowor
k“f
latout
”toearnasmuchpr
ofi
taspossi
ble.

• Thisiscommon with owner

sofsmallbusi
nesseswho wish t
oli
ve
comfort
abl
ybutdonotwanttowor
kevenl
ongerhour
stoear
nevenmore
prof
it
.

• Onceasat
isf
actor
ylevelofprof
ithasbeenachi
eved,t
heyconsi
dert
hat
ot
herai
mstakespri
ori
ty,f
orexample,
lei
sur
e.

6.Maxi
mizi
ngShor
t-
ter
m Sal
esRevenue

• Thiscouldbenef
itmanager
sandstaf
fwhensal
ari
esandbonusesar
e
dependentonsal
erevenuel
evel
s.

Li
mit
ati
onst
oMaxi
mizi
ngShor
t-
ter
m Sal
esRevenue

• I
fincr
easedsal
esareachi
evedbyr
educi
ngpr
ices,t
heact
ualpr
ofi
tsof
t
hebusinessmi
ghtf
all
.

7.Maxi
mizi
ngShar
ehol
derVal
ue

• Thiscoul
dappl yt opubl
icli
mi t
edcompaniesanddirect
smanagement
act
iontowardst aki
ngdecisi
onsthatwoul
di ncr
easet
hecompanyshare
pri
ceanddividendpaidtosharehol
der
s.

• These t
arget
s mi
ghtbe achi
eved by pur
sui
ng t
he goalof pr
ofi
t
maximi
zati
on.

8.Cor
por
ateSoci
alResponsi
bil
it
y(CSR)
 Thi
swasdevel
opedbyMi
lt
onFr
iedmanandAr
chi
eCar
rol
l

• Thisconceptappliest othosebusinessesthatconsidertheinterestof
soci
et ybyt aki
ngr esponsi
bil
it
yf ortheimpactoft hei
rdecisi
onsand
acti
viti
esoncust oms,empl oyees,communi t
iesandt heenvir
onment .
Exampl es of corpor at
e social responsibi
lit
ies are provi
sion of
scholarshi
ps,cl
eaningcampaignsandcr eat
ionofempl oyment

I
mpor
tanceofBusi
nessObj
ect
ives

• Object
ivesgi
vet hebusinessasenseofdi r
ect
ion.Al
lorganizat
ional
ef
forts wi
llbe tai
lor
ed towar
dthe achi
evementofobject
ives.This
pr
eventsconfl
ict
sofinter
est
s.

• Objecti
vesactasayar dst
ickagainstperf
ormanceandcanbemeasured.
Progressisassessedagainstsetstandards,thusal
lowi
ngf
orcor
rect
ive
acti
oni fact
ualper
for
mancei sbelowt hemar k.

• Obj
ect
ivesactasmoti
vat
orsboost
ingt
heest
eem andmeet
ingt
hesel
f-
act
ual
isat
ionofwor
ker
s.

• Obj
ecti
veshelpinsetti
ngrul
es,pol
ici
esandst
rat
egi
esf
ort
hewhol
e
company.Theyassi
sti
npol
icymaki
ng.

• Theyhelpinf
ormul
ati
nggui
del
inest
hatgi
vet
hebusi
nessasenseof
purpose.

• Theypr
ovi
deaf
ramewor
kfordeci
sionmaki
ng.

• Al
lowst
hebusi
nesst
oeval
uat
eit
sper
for
mance.

Li
mit
ati
onst
oBusi
nessObj
ect
ives

• Theycandemot
ivat
ewor
ker
sift
heyar
eunat
tai
nabl
e.

• For
mul
ati
onofobj
ect
ivescanbet
imeconsumi
ng.

• Obj
ect
ivesmightchangeovert
imel
eadi
ngt
oconst
antr
evi
ew oft
he
obj
ect
ivesf
rom t
imetoti
me.

• Theyshowwhati
stobeachi
evednothowi
twi
llbeachi
eved.

Conf
li
cti
ngObj
ect
ivesofSt
akehol
der
s

Di
ff
erentst
akehol
der
sinabusi
nesshavedi
ff
erentobj
ect
ives.
1.Owner
s

• Whenowner splaynopar ti
nt herunni
ngofthebusi
ness,thei
robjecti
ve
i
st omaximisethei
rret
urns.Typical
lyt
hisoccur
swhenthebusinessisa
medium tol ar
gesized companyowned byshar ehol
ders.Thismi ght
confl
ictwit
hmanager s’objecti
veswhomi ghtwanttoretainprofi
tfor
growthrat
herthanpaythem outasdivi
dends.

2.Wor
ker
s

• Ordinaryworkersfrom mi ddl
emanagementhavel i
tt
leinteresti
nthe
objecti
vesoftheowner .Theywantpayandjobsat
isfact
ion.Theywant
thehi ghestpossi
blewagesand t hi
smightconfl
ictwitht heowners’
objecti
vesofcutt
ingcostsandincr
easi
ngpr
ofit
s.

3.Cust
omer
s

• Theywantt hebestpri
ceswiththebestquali
ty.Theywantgoodser vi
ce.
This may conf l
ictwith ot
her st
akeholder
s’i nt
erests,for example,
spendingmor eonr esear
chanddevel opmentt ocreatenew pr oducts
mightlowertheamountpayableasdivi
dendst oshareholder
s.I
mpr ovi
ng
quali
tymightleadtohi
ghcosts.

4.TheCommuni
tyandt
heGover
nment

• Thecommuni tyinwhichabusi nessoperat

estendstowelcomej obs,
taxesand prosperi
tywhi ch t
hebusi nesscan bri
ng t
othear ea.The
governmentmi ghtinsi
stoncost lydevel
opment
s,forexample,t
oavoi d
poll
utionbyi nsi
sti
ngonpol luti
on-fr
eeequipment.Thi
smi ghtconfl
ict
withthefi
rm asiti
ncreasescosts.

Economi
cSyst
ems

• Allcount
ri
esar
efacedwi
thaneconomicpr
obl
em ofscarci
ty.Economi
c
systemshavet
omakechoi
cesi
nresol
vingt
hequest
ionsof:

• Whatshoul
dbepr
oduced?

• Howshoul
ditbepr
oduced?

• Whoshoul
dgetwhati
spr
oduce?

• Whenshal
litbepr
oduced?

• Fr
eeMar
ketEconomy/
Lai
ssez-
fai
re/
Capi
tal
istEconomy
 Iti
samar ketwherebythemeansofproducti
onar
econtroll
edbyfewprivat
e
i
ndivi
dual
sandt hereisli
tt
leornogovernmentint
erventi
on.A feat
ureof
devel
opi
ngcountriessuchasBotswana,Zi
mbabweandot hers

Feat
ures

• Fi
rmsoper
atet
omakepr
ofi
t.

• Mar
ketf
orcesar
eal
lowedt
ooper
ate.

• Ther
eisf
reeent
ryandexi
toff
ir
ms.

• Pr
icesar
edet
ermi
nedbymar
ketf
orcesofdemandandsuppl
y.

• Ther
eisal
imi
tedgover
nmenti
nter
vent
ioni
ntheeconomy.

• Count
ri
escl
oset
othi
seconomyi
ncl
udes,
USA,
JapanandCanada.

• Hi
ghl
evelofi
nvest
ment

• Hi
ghl
evelofempl
oyment

• CommandEconomy/
Cent
ral
lyPl
anned/
Planned/
Soci
ali
stEconomy

I
tisamarketwher
ebythemeansofpr
oduct
ionarecont
rol
ledbythest
ate.A
f
eatur
eofdevel
opedcount
ri
essuchasFr
ance,Denmarkandother
s

Feat
ures

• Ther
eisgover
nmentowner
shi
pandcont
rol
ofr
esour
ces.

• Thegover
nmentset
spr
ices.

• Fi
rmspr
oducegoodsf
ort
hebenef
itoft
hepubl
ic.

• Exampl
esofcount
ri
esi
ncl
ude,
Cuba,
Nor
thKor
eaandChi
na.

• Ther
eisl
owl
evelofweal
thi
nequal
it
ies

• Lowl
evel
ofunempl
oyment

• Lowl
evel
ofi
nvest
ment

3.Mi
xedEconomy

• Thi
sisacombi
nat
ionoft
hepl
annedandt
hef
reemar
keteconomy.
 • Mostessentialgoodsandservi
ceswhichbenef
itsoci
ety,
areprovi
dedby
bothgovernmentandpr ivat
efirms,f
orexample,schools,hospi
taland
broadcast
ing.

• Many product
s are pr
ovided by pr
ivat
efi
rms,f
or exampl
e,car
s,
comput
ers,cl
othi
ngandjewelr
y.

• Gover
nmentcont
rol
spol
lut
ionandr
est
ri
ctsmonopol
ies.

• Exampl
esofcount
ri
esi
ncl
udeZi
mbabweandUK.

EconomicSyst em Advant
ages Di
sadvant ages
FreeMarket • Pr of it encour ages • No gover nment
• Suppl yanddemand efficiency. cont rol over
forces. • Compet i
ti
on pol l
ut i
on.
• Profitmot i
ve i
mpr ovesqual ity. • Li ttle or no
• Privateowner ship. • I ncreasescust omer product ion of
choi ce. publ icgoods.
• Cr eat es • L imi ted stat e
empl oyment. suppor t f or t he
• I mpr oves st andar d elder ly and t he
ofliving. unempl oyed.
CommandEconomy • I tpr eventswast eful • No consumer
• Stateowner shipof compet it
ion and choi ce.
resour ce. dupl icati
on of • Encour ages br ain
• Prices setby t he goods and drai n.
gover nment . resour ces. • Poorqual i
ty.
• Al lows f or l ong • I nef fi
ciency.
term planni ng, • Ve rysl ow deci sion
usual l
y5yrsplan. maki ng.
• Pr oduct i
onisbased
i
n t he needs of
maj or i
ty not
consumerspendi ng
habi ts.
MixedEconomy • Essent i
al ser vices • Tax r ates can be
• Mixt ure of st ate for bot hr i
ch and toohi gh.
and pri
vate poor . • St at e busi nesses
owner shi p. • Ther e is arei nef fi
cient.
• Ta xescol lectedpay compet it
ion. • Ex cessi ve cont r ol
forpubl icgoal s. • Cons umerchoi ce. can inhabi t
ent erprises f rom
growi ng.

Measur
ingBusi
nessSi
ze
Ther
ear eanumberofcr
it
eri
asormet
hodusedt
omeasur
ethesi
zeoft
hef
ir
m
andthesear
eexplai
nedbel
ow

1.TheNumberofEmpl
oyees

• Af i
rm empl oying a few numbers ofpeopleis considered smal l.A
busi
nesswi t
ht housandsofempl oyeesmaybeconsi deredl arge,but
howeveritshouldber ememberedthatsomefirmsarenotlabori ntensive
butcapi
talintensi
ve,forexampl
e,ahighl
yautomatedchemi calplantmay
onl
yempl oy45peopl ebuthaveaturnoverofover$5mill
ion.

2.Sal
esTur
nover

• Thel argerthesal es,thelargerthebusiness,buthowever,t

hisi suseful
when compar i
ng f ir
ms i nt he same i ndustry.The compar ison is
compr omi sedassomef ir
mssel lhighvalueitemswhileotherssel ll
ow
valuesi t
ems.Thusal argefirm wit
hmanywor ker
smightselllow val
ue
goodsandsal esr evenuewi llbelow,atthesamet i
measmal lfi
rm with
few empl oyeesmi ghtsellveryfew expensivecomputersandi t
ssal es
revenuewi llbehigh.

3.Capi
talEmpl
oyed

• Thisref
erstothet otalval
ueoflongt er
mf inanceusedi nt hebusiness.
General
lythe greaterthe enter
pri
se the greaterthe value ofcapi t
al
neededforlong-t
ermi nvest
ments,howevercompar isonsbet weenf i
rms
i
ndi f
fer
entindustr
iesmaygi vearathermisl
eadingpi ct
ure.Twodi ff
erent
fi
rmsempl oyi
ngthesamenumberofpeopl emi ghthavedifferentcapit
al
needs.

4.Mar
ketShar
e

• Marketshar
eist
hesal
esoft
hebusi
nessasapr
opor
ti
onoft
otalmar
ket
sal
es.

• Iti
sar elat
ivemeasure.I
fafir
m hashi
ghmarketshare,i
tmustbeamong
theleadersi ntheindustr
yand compar
ati
velylarge.Marketshar
eis
cal
culatedasfol
lows:

• However
,whenthesizeoft
het ot
almar
keti
ssmal
l,ahi
ghermar
ket
shar
ewil
lnoti
ndi
cat
eaveryl
argefi
rm.
5.Mar
ketCapi
tal
isat
ion

• Iti
sthetotalval
ueofacompany’ si
ssuedshar eval
ue.I
tiscal
culat
edby
curr
entsharepri
ce×t otalnumberofshar esi
ssued.Hi
ghvalueofshares
mightmeant hefir
mi slarge,however,assharepri
cestendtofl
uctuate;
thi
sfor
m ofcompar isonisnotverystable.

6.Pr
ofi
ts

• Abusinesswhichhashighpr
ofi
tst
hanotherscanbecl
assi
fi
edasl
arge,
howeverthel
evelofpr
ofi
tmaybemisl
eading.

• Al argecompanymayhavepr oblemsandmakeonl ysmallprofi

tsovera
periodoft i
me.Profi
tisconsideredasameasur eofef f
ici
encywhen
compar edwitht
hesalesorcapit
alemployed.Agai
ndiff
erentbusinesses
have di f
fer
entways of calcul
ating di
ffer
entfi
gures.For exampl e,
depr eci
ationandstockhencesuchmet hodshavediffer
enteffectson
profits.

7.Or
gani
zat
ionalSt
ruct
ure

Alargefir
mi scharacteri
zedwit
haformalorgani
zati
onalst
ruct
uresuchas
geographi
cal
,divi
sional,
matri
xandfunct
ionalwher
easasmal lf
ir
misaf i
rm
wit
hani nfor
malst ruct
urenotshowi
ngthechainofcommandandspanof
contr
ol

• Geogr
aphi
calCover
age

Alargefi
rm hasalar
gecoveragewi t
hal ar
genumberofbr
anchesand
subsi
diar
ieswher
easasmallf
irm coversasmal
lar
eawit
hfewbranches

• Asset
soft
heBusi
ness

Al
argef
ir
m havemor
eval
uabl
easset
sthanasmal
lfi
rm

Smal
lFi
rms

• Thesear
efi
rmswhi
chcanbedef
inedi
nfol
lowi
ngways:

• Thesi
zeoft
hel
aborf
orce(
200orl
ess)
.

• Theyhavear
elat
ivel
ysmal
lmar
ketshar
e.
 • Theyar
emanagedbyowner
sinamor
eper
sonal
izedway.

• Theyar
eindependentofl
argegr
oups.

I
mpor
tanceofSmal
lFi
rmst
otheEconomy

• Employmentiscr
eat
ed,eachoneofthem wi
llnotempl
oymanypeople
butcoll
ect
ivel
ythey empl
oy a si
gni
fi
cantpropor
ti
on oft
he wor
king
popul
ati
on.

• Theypr
oduceawi
devar
iet
yofgoods,
incr
easi
ngconsumerchoi
ce.

• Smallfi
rmscreat
ecompeti
ti
onf
orl
argeonesl
eadi
ngt
oimpr
ovedqual
it
y,
ef
fi
ciencyandlowpri
ces.

• Smal
lfi
rmswi
dent
het
axbasef
ort
hegover
nment
.

• Smal
lfi
rmscont
ri
but
etot
henat
ionalout
put(
GDP)
.

• Smallfi
rmsal so cont
ri
but
eto expor
tsbr
ingi
ng i
nthemuch needed
for
eigncur
rency.

• Theycoul
dbecomet
hel
argef
ir
msoft
omor
row.

• Theypr
ovi
der
awmat
eri
alt
olar
gef
ir
m

• Fl
exi
bil
it
yofoperat
ions.Thi
sal
lowst
heownert
oswi
tcheasi
lyf
rom one
busi
nesstoanot
her

• Managementandcont
roli
sr et
ainedbytheownerreduci
ngpossi
ble
conf
li
cts common wi
th l
arge compani
es bet
ween manager
s and
shar
eholder
s.

• Per
sonalcont
actoft
heownerwi
thwor
ker
s.

• Lowcapi
tal
isneededt
osetupsmal
lbusi
nesses.

• Facef
ewerl
egalf
ormal
i
ties.

• Theyar
eli
kel
ytogetassi
stancef
rom t
hegover
nment
.

Pr
obl
emsf
acedwi
thSmal
lFi
rms

• Pr
oblemsinraisingbothshor
t-
ter
m andl
ong-
ter
mfi
nancesduet
o
l
ackofcol
lat
eralsecur
it
y
 • Lackofmanagementexper
ti
se.Ownerper
for
msal
lfunct
ions.

• Di
ff
icul
tyi
nfi
ndi
ngsui
tabl
eandr
easonabl
ypr
icedpr
emi
ses.

• Mar
ket
ingr
isksar
isi
ngf
rom al
imi
tedpr
oductr
ange.

• Donotenj
oyeconomi
esofscal
e.

• Theyf
acest
if
fcompet
it
ionf
rom l
argef
ir
ms

• Theyl
ackcont
inui
tyi
ftheownerdi
es

• Lackofski
ll
edper
sonnel

• Suf
ferf
rom heavyt
axat
ionf
rom t
hegover
nment

• Theyl
ackr
easonabl
epr
emi
ses

Gover
nmentAssi
stancef
orSmal
lFi
rms

Thegover
nmentcanassi
stsmal
lfi
rmsi
nthef
oll
owi
ngways

• Provi
ding i
nformati
on, advice and management suppor
tt hr
ough
depart
mentsandagencies.InZimbabwe,ZI
MTRADEandt hemini
str
yof
smallandmedium scal
eenterpr
ises.

• Low int
erest
sthr
ough t
he smal
lent
erpr
ise devel
opmentcor
por
ati
on
(SEDCO).

• Tradeexhibi
ti
onssuchast
heZi
mbabweI
nter
nat
ionalTr
adeFai
r(ZI
TF)
topromoteexpor
ts.

• Thegovernmentoftenurgescommercialbankst oprovi
delow interest
l
oans to smallbusinesses.I
n Zi
mbabwe t he Commer ci
alBank of
Zi
mbabwe( CBZ)providescommuni
tybanking.StandardCharter
edbank
l
imit
edin2005i nt
roducedaschemef orsmal lenter
pri
sesatf avorable
i
nter
estrat
es.

• Tradeat
taches(
consul
aroff
ici
als)basedinfor
eigncount
ri
espr
omot
e
goodspr
oducedbybothsmal
landlargefi
rms.

• Thegover nmentshoul
dexposesmal
lfi
rmt
oal
ter
nat
ivemer
ger
sand
takeover

• Thegovernmentshouldpr
ovi
det
rai
ningf
aci
li
ti
est
hroughuni
ver
sit
ies
andpol
ytechni
ccol
leges
 • Provi
sionofreasonabl
epr
emi
sessuchasGl
enVi
ew 8homei
ndust
ri
es
andgulfcomplex

Sur
vivalofSmal
lFi
rms

• Smallf
irmssur
vivedespi
tecompet
it
ionf
rom l
argef
ir
ms.Thi
sduet
othe
fol
lowi
ng:

• JointVentur
es–Smallfir
msmayagr
eet
odobusi
nessj
oint
lysoas
toenjoyeconomi
esofscal
e.

• Suppor
ti
ngRol
e– Smal
lfi
rmssuppl
ylar
gef
ir
mswi
thcomponent
s
andspar
es.

• Special
istSer
vices–Ser
vicessuchasaccountancy,
legaladvi
ceand
consult
ancycannotbemasspr oduced.Smal
lfir
mscansuppl ysuch
servi
ces.

• Personal
ized Servi
ces – The need to give per
sonalatt
enti
on t
o
customer
swhodemanduni queproductsbestsuitssmal
lfir
ms.The
marketist ool i
mit
edforlargeoperations.I
naddi t
iontheneedto
addressi
ndi vi
dualt
ast
ecanonlybeser vedbysmal lf
ir
ms.

• NicheMarket
ing–Throughmarketsegmentat
ion,smallfir
msmi ght
di
scoveragapthatwi
llbeexpl
oit
edtoearngreaterprofi
ts.Thesize
ofthemar
ketmaybetoosmallf
orconsider
ati
onbyl ar
gefirms.

WhySmal
lFi
rmsRemai
nSmal
linSi
ze

• Remaini
ngsmallr
educest
hebusi
ness’
over
allcost
s,f
orexampl
e,l
abour
cost
sandrent
alcost
s.

• Smallf
irmsusuall
ygetsupportf
rom t
hegover
nmenti
nter
msoft
rai
ning,
subsi
dies,
grant
s,taxhol
idayset
c.

• Mar
ketforgoodsandser
vicesmi
ghtbesmal
l,unl
esst
hemar
ketgr
ows,
t
hefi
rm wil
lremai
nsmall
.

• Toavoi
dthepr
obl
em ofdi
seconomi
esofscal
easar
esul
tofexcessi
ve
gr
owth.

• Theownersofsomesmallf
ir
msdonothavet henecessar
ymanagement
ort
echni
calski
ll
sneededf
orlar
gebusi
nesses.

• Lackofcapi
tal
.
 • Toavoi
dpaymentofhuget
axest
othegover
nment
.

• Toavoi
dovert
radi
ng

N.
B.:Gover
nmentcant
hreat
ensur
vivalofsmal
lfi
rmst
hrough:

• Heavyt
axat
ion.

• Pr
icecont
rol
s.

• Mi
nimum wages

• Cor
rupt
ion.

• I
mpor
tcont
rol
s.

Gr
owt
hofFi
rms

Reasonsf
orgr
owt
hincl
ude:

• Incr
easedprofi
ts.I
fthemainai
m oftheowneri
spr
ofi
t,t
henexpandi
ng
thebusinessandachievi
nghi
ghersalesi
sonewayofbecomingmore
prof
itabl
e.

• Incr
easedmarketshare.Thi
swil
lgivet
hebusi
nessahi
ghermar
ket
prof
il
eandgr
eaterbar
gaini
ngpower
.

• I
ncr
easedeconomi
esofscal
e.

• I
ncr
easedpowerandst
atusoft
heowner
s.

• Reducedr
isksofbei
ngat
akeovert
arget
.

• Mot
ivat
ionofst
affasj
obsecur
it
yincr
eases.

Fi
rmscangr
owi
nter
nal
lyandext
ernal
ly.

I
nter
nalGr
owt
h

• Expansionofabusinessbymeansofopeni ngnewbr anches,shopsand

factor
ies.Iti
salsoknownasor ganicgrowt
h.Thiscanbequi teslow.It
avoidst heprobl
emsofexcessi velyfastgr
owth,whichtendt oleadto
i
nadequat ecapit
al(
overtr
ading)andmanagementpr oblemsassoci at
ed
withbringi
ngtwobusinessestogether.

Ext
ernalGr
owt
h
 • Busi
nessexpansi
onachi
evedbymeansofmer gingwi t
hortaki
ngover
anot
herbusi
nessfr
om ei
thert
hesameordi
ff
erentindust
ry.

• Exter
nalgrowt
hisoft
enref
err
edt
oasi
ntegr
ati
onasi
tinvol
vesbr
ingi
ng
toget
hertwoormorefi
rms.

• Thi
sform ofgr
owth can l
ead torapi
d expansi
on whi
ch mi
ghtbe
i
mport
anti
nacompet
it
iveandexpandi
ngmarket.

I
ntegr
ati
on

I
tisoneofthemethodsofgr
owt
hthataf
ir
m canpur
sue.I
tencompasses
t
akeover
sandmer
gers

• At akeoveri
s when one company acqui
res anot
hercompany.The
acqui
redcompanywi
lll
oseitsi
dent
it
ycompletel
y.

• Amer gerori
ntegr
ati
onoccurswhent
woormor
efi
rmsagr
eet
ojoi
nthei
r
oper
ationsi
ntoasingl
eenti
ty.

1.Hor
izont
alI
ntegr
ati
on

• Ist
hejoi
ningoffi
rmsint
hesamel i
neofbusi
nessandatthesamest
age
ofpr
oducti
on,f
orexampl
e,abaker
ymergingwit
hanotherbaker
y.

Advant
agesofHor
izont
alI
ntegr
ati
on

• El
imi
nat
escompet
it
ion.

• Possi
bleeconomi
esofscal
e.

• I
ncr
easedpoweroversuppl
ier
.

• Si
mil
arski
ll
sofempl
oyees.

• Lessl
ikel
ihoodoff
ail
urecausedbymovi
ngi
ntoat
otal
lynewar
ea.

Di
sadvant
agesofHor
izont
alI
ntegr
ati
on

• Rat
ional
izat
ionmaybr
ingbadpubl
ici
ty.

• Mayleadt
omonopol yinvest
igat
ioni
fthecombi
nedbusi
nessesexceed
cer
tai
nmarketshar
eli
mits.

Ef
fect
sonSt
akehol
der
s

• Consumer
snowhavel
esschoi
ce.
 • Monopol
iescanchar
gehi
ghpr
ices.

• Wor
ker
smayl
osej
obsecur
it
yduet
orat
ional
izat
ion.

• Hi
ghdi
videndst
oshar
ehol
der
sduet
ohi
ghpr
ofi
ts.

2.Ver
ti
calI
ntegr
ati
on

• I
ttakest
hef
orm off
orwar
dint
egr
ati
onandbackwar
dint
egr
ati
on.

2.
1.For
war
dint
egr
ati
on

• Iti
sint
egr
ati
onwit
habusi
nessi
nthesamei
ndust
rybyacust
omeroft
he
exi
sti
ngbusi
ness.

• I
tismergi
ngwit
habusi
nessatthenextst
ageofpr
oduct
ion,
forexampl
e,
manuf
acturi
ngf
ir
m mer
geswit
har et
ailf
ir
m.

Advant
agesofFor
war
dInt
egr
ati
on

• Busi
nessi
sabl
etocont
rolt
hepr
omot
ionandpr
ici
ngofi
tsownpr
oduct
s.

• Securesout
let
sfort
hef
ir
m’spr
oduct
smaynow excl
udecompet
it
ors’
product
s.

Di
sadvant
agesofFor
war
dInt
egr
ati
on

• Thebusi
nessmi
ghtl
ackt
henecessar
yexper
iencei
nthatst
age.

• Asuccessf
ulmanuf
act
urerdoesnotal
waysmakeagoodr
etai
ler
.

Ef
fect
sonSt
akehol
der
s

• Workersmayhavegr
eat
erj
obsecur
it
ybecauset
hei
rbusi
nesshasa
secur
eoutl
et.

• Consumersmayresentl
ackofcompeti
ti
oni
nther
etai
lout
letbecauseof
thewit
hdr
awalofcompeti
torpr
oduct
s.

2.
2.Backwar
d-Ver
ti
calI
ntegr
ati
on

• Int
egr
ati
onwithabusi
nessi
nthesamei
ndust
rybyasuppl
ieroft
he
exi
sti
ngbusi
ness.

Advant
agesofBackwar
d-Ver
ti
calI
ntegr
ati
on

• Thebusi
nesswi
llcont
rolsuppl
ier
sofr
awmat
eri
als.
 • I
tencour
agesj
ointr
esear
chanddevel
opmenti
ntot
hequal
it
yofsuppl
ies.

• I
tgi
vescont
roloverqual
it
y,pr
icesanddel
iver
y.

Di
sadvant
agesofBackwar
d-Ver
ti
calI
ntegr
ati
on

• Suppl
ier
s may become r
elaxed as a r
esul
tofhavi
ng guar
ant
eed
cust
omer.

• Thebusi
nessmayl
ackexper
iencei
nmanagi
ngasuppl
ier
.

Ef
fect
sonSt
akehol
der
s

• Gr
eat
eroppor
tuni
ti
esf
orcar
eeradvancementf
orwor
ker
s.

• Cust
omer
smaygeti
mpr
ovedqual
it
ypr
oduct
sandi
nnovat
edpr
oduct
s.

• Contr
olofsuppli
ersf
rom compet
it
orsr
educescompet
it
ionandl
imi
ts
consumerchoi
ce.

3.Lat
eralI
ntegr
ati
on

• Invol
vesthemergi
ng oftwo f
ir
mswi
thr
elat
ed goodswhi
ch do not
competedir
ect
lywi
theachot
her
.

• Pr
oduct
iont
echni
quesordi
str
ibut
ionchannel
smaybesi
mil
ar.

• CadburyandSchweppesi
sanexamplesi
ncet
hetwofi
rmsusedsi
mil
ar
raw materi
alsandhadsi
mil
armarket
sbutdonotcompet
ewitheach
otherdi
rect
ly.

Congl
omer
ate(
Diver
sif
yingMer
ger
)

• Fi
rmspr oduci
ng unr
elat
ed pr
oduct
smer
ging.Thi
sisal
so known as
di
ver
sif
icati
on.

• Thebusi
nessi
sdi
ver
sif
iedawayf
rom i
tscor
ebusi
ness.

• Itisacombi nati
on oft
wo ormor
ecor
por
ati
onsengaged i
n ent
ir
ely
dif
fer
ent
lybusiness.

• Afi
rm mightfearalossofmarketshareduetogreatercompeti
ti
onand
asaresul
titmaytr
yt oexpl
orenearanddi
ffer
entopportuni
ti
es.

Advant
agesofCongl
omer
ate

• Thi
sspr
eadsr
isksovermor
epr
oduct
sandmar
ket
s.
 • Afallsuf
fer
edbyonesubsidedpar
tcanbecount
erbal
ancedbyst
abi
li
ty
orevenexpansi
onbyanot
her.

Di
sadvant
agesofCongl
omer
ate

• Lackofmanager
ialexper
iencei
ntheacqui
redbusi
ness.

• Therecoul
dbelackofclearf
ocusanddirect
ionsi
ncet
hebusi
nessi
s
spreadacr
ossmor
ethanonebusi
nessl
ine.

• Cul
tur
alcl
ashesmayoccur
.

• I
tal
soi
ncr
easest
heover
allexpensesoft
hebusi
ness.

I
mpactonSt
akehol
der
s

• Gr
eat
eroppor
tuni
ti
esf
orcar
eeradvancementf
orwor
ker
s.

• Jobsecur
it
yasr
iski
sspr
eadacr
ossmanyi
ndust
ri
es.

Pr
obl
emsofGr
owt
h

• Expansi
oni
sexpensi
vehencea

• Addi
ti
onalf
inancei
srequi
red.

• Managementmayf
ailt
ocopewi
thl
argebusi
ness.

• Di
vor
cebet
weenowner
shi
pandcont
rolbecomesmor
epr
onounced.

St
akehol
der
sinaBusi
ness

• Thesearepeoplewhohaveani nt
eresti
ntheperf
ormanceandacti
vit
ies
ofabusiness.Theyareeit
heraff
ecteddir
ect
lyorindi
rect
lyaf
fect
edby
theact
ivi
ti
esofabusiness.

TheDi
ff
erencebet
weenaSt
akehol
derandaShar
ehol
der

• A stakeholderisanyonewi thani nt
erestinthebusinessandaf
fect
ed
ei
ther directl
y or indi
rectl
y by the business act
ivi
ti
es,wher
eas a
shareholderis one oft he st
akeholderwho is a partownerofthe
companyandaf fect
eddirect
lybythebusinessact
ivi
ti
es.
 • Exampl
esofst
akehol
der
sincl
ude:

• Owner
s.

• Wor
ker
s.

• Cust
omer
s.

• Suppl
ier
s.

• Localcommuni
ty.

• Banks.

• Gover
nment
.

Stakeholder Rol
es Ri
ght
s Responsibi
liti
es
Customer • Pur chase • To recei ve • Honest y, t o
goods and goods and payf orgoods
services. servi ces t hat bought or
• Provi de meet l
ocal services
revenue f r
om laws received.
sales whi ch regar ding • Nott ost eal
.
all
ow the heal th and • Not t o make
busi ness t o saf etydesi gn. false cl ai
ms
funct i
on and • To beof fered about poor
expand. repl acement s, service,
repai r s, under perfor
mi
compensat ion ng goods or
int heeventof fail
edi tems.
the pr oduct
fail
ur e.
Suppl i
ers • Suppl y goods • Tobepai don • Suppl y goods
and ser vices time. and ser vi
ces
to al l
ow t he • To be t reated orderedbyt he
busi ness t o fairly by t he businessasi n
offerpr oducts pur chasi ng the pur chase
tocust omer s. fir
m, for contract .
exampl e, not
tobef orcedt o
char ge l ow
prices.
Empl oyees • Provi de • To be t reated • Tobehonest .
manual and wi t
hi n the • To meet t he
other l abour mi nimum condi ti
onsand
servicest othe li
mi ts as requirement s
busi ness t o establ ishedby of the
 all
ow goods anat i
onall aw, employment
and servi
ces for exampl e, contract.
tobeprovi
ded mi nimum • To cooper ate
toconsumer
s. wager ates. with
• Tobepai dthe management
waydescr ibed i
n al
l
i
n the reasonable
empl oyment requests.
cont ract . • Toobs ervethe
• Tobeabl et o ethi
calcodeof
belong t o a conduct.
tradeuni on.
Local • Pr
ovi
de l
ocal • To be • To cooper ate
Communi
ty service and consul ted wi t
h the
i
nfrastruct
ure about maj or busi ness
to the changes t hat wher e
business t o affect i t,f or reasonabl e t o
all
ow i t t o exampl e, do so, on
operate, expansi on expansi onand
produce, sell plan or otherpl ans.
within l egal changi ng • To meet
l
imi t
s. met hod of reasonabl e
product ion. request sf r
om
• Not t o have busi ness f or
the l
ocal ser vices
communi t
y suchas, publ i
c
l
ives badly transpor t,f or
affect ed by exampl e, t o
the busi ness allow st afft o
activities. gett owor k
Gover
nmen • Passes l aws • Busi nesses • To tr
eat
t that r estrai
n havet hedut y busi nesses
manyaspect s togover nment equal l
y under
of busi ness to meet al l thel aw.
activiti
es. l
egal • To pr event
• Provi des l aw const rai ns, unf air
and or der to such as compet ition
all
ow l
egal produci ng that could
busi ness only l
egal damage
activiti
es t o goods and t o busi ness’
takepl ace. pay t axes on sur vival.
• Ac hieves ti
me. • To e stablish
economi c good t r acking
stabi l
it
y t
o l
inks with
encour age other
 business countri
es t o
act
ivit
ies. al
low
i
nternati
onal
tr
ade.

I
mpactofBusi
nessDeci
sionsonSt
akehol
der
s

Busi ness I
mpactonEmpl oyees I mpact on Local I mpact on
Deci si
on Community Customer
Lar ge • Mor ej obs and • Mor e j obs f or • Bet ter
expansi on of car eer l
ocal r esident s ser vi ce
the busi ness oppor t
uniti
es. and i ncreased pr ovi ded
by bui lding a • Di srupti
on spending in by bi gger
new head dur i
ng bui l
di ng other l
ocal busi ness
office and mor e business. wi th mor e
compl ex l ines • Disruption st af f.
of caused by • L ar ger
communi cation i
ncr eased busi ness
af terexpansi on. traff
icandl ose coul d be
of gr een f ield less
forameni t
yuse. per sonal
and
ther efor e
of fer
inf er i
or
cust omer
ser vi ce.
Takeoverofa • The l
ar ger • Ifthe busi ness • Thel arger
compet i
ng busi ness may expandsont he busi ness
fir
m bemor esecur e existi
ng si ze, may
(hor i
zontal andof fercar eer l
ocal job benef it
i
nt egrati
on) pr omot i
on vacanci es and from
oppor t
uniti
es. i
ncome mi ght economi e
• Rat i
onali
zation i
ncr ease. sofscal e,
may occur t o • Ra t
ional i
zation whi ch
avoi d wast e of dupl icated coul dl ead
andcutcost s. offi
ces or to l ower
• J obs mi ghtbe factori
es mi ght pr ices.
lost . l
ead t o some • Reduced
closureandj ob compet iti
l
osses. on coul d
have t he
opposi t
e
ef fect .
• L ess
consumer
 choi ce
mi ght
resul t in
high
prices.
Signi
fi
cant • Training and • Localbusi ness • Mor e
appli
cati
on of promot i
on providing IT efficient
IT int
o oppor tunit
ies services coul d and
product
ion might be benef it f r
om fl
exi ble
methods offered. i
ncr eased product io
• Fewer orders. n
untrained st aff • Spe ciali
st met hods
willber equired wor kers may mi ght
and t
hose notbeavai l
able i
mpr ove
unabl et ol earn l
ocal l
ysomor e qual it
y.
new ski llmay commut ing by
be made staff i n car s
redundant . mi ght be
necessar y.

Over
tradi
ng

• Is when an organi
sati
on under
goes a r
api
d expansi
on wi
thoutt
he
adequat
efinancetosuppor
tgrowth.

Sympt
oms

• Desper
atesel
li
ngofasset
satunf
avor
abl
eter
ms.

• Desper
atebor
rowi
ngatunf
avor
abl
eter
ms.

• Fai
lur
etopaycr
edi
tor
s.

• Li
qui
dit
yconst
rai
nts

Causes

• Compet
it
ionf
ight
ing.

• I
n-ef
fect
ivemanagementofwor
kingcapi
tal
.

• Tempor
aryout
bur
stofmar
ket
ingoppor
tuni
ti
es.

• Over
-opt
imi
sti
cvi
ewsaboutt
hef
utur
e.

• Poorpl
anni
ng.
Sol
uti
ons

• Eff
ecti
vemanagementofwor kingcapi
talbymonit
ori
ngt
hepr
essur
e
poi
nts,t
hati
s,cash,
stocks,
debtorsandcredi
tor
s.

• Accur
atedemandf
orecast
ing.

• Ef
fect
ivepl
anni
ng.

• Or
gani
zat
ionalr
est
ruct
uri
ng.

Or
gani
zat
ionalCul
tur
e

• Thisisasystem ofsharedmeaningheldbymember
sthatdi
sti
ngui
sht
he
organisat
ionfr
om otherorgani
sat
ions.

• I
texpl
ainst
hewayt
hingsar
edonei
nanor
gani
sat
ion.

• I
tencompassesbel
ief
s,val
ues,
mor
als,
dressi
ngandat
ti
tudes

Fact
orswhi
chi
nfl
uenceOr
gani
zat
ionalCul
tur
e

• Thephi
losophyoft
hef
ounder
.

• Hi
stor
y/t
radi
ti
onoft
heor
gani
sat
ion.

• Thenat
ureandact
ivi
ti
esoft
hebusi
ness.

• Thesi
zeoft
heor
gani
sat
ion.

• Rul
esandobj
ect
ives.

• Manager
sandempl
oyeesper
sonal
it
y

• Typeofcust
omer
s.

I
mpor
tanceofCul
tur
e

• Boundar
ycr
eat
ion–def
iner
oleanddi
sti
ngui
shor
gani
sat
ions.

• Conveysasenseofi
dent
it
yforor
gani
sat
ion’
smember
s.

• Facil
it
atesthegener
ati
onofcommi
tmentt
osomet
hingl
argert
hanone
i
ndivi
dual’
sself
-i
nter
est
.

• Itenhancest
hestabi
li
tyofsoci
alsyst
em,thatis,i
tact
sasasoci
algl
ue,
provi
deappropr
iat
estandar
dsonhowt obehave.
 • Act
sasasenseofcontrol
,amechani
sm t
hatgui
desandshapesat
ti
tude
andbehavi
orofempl
oyees.

• I
tmakescommuni
cat
ioneasy.

Di
sadvant
agesofOr
gani
zat
ionalCul
tur
e

• Thesestrongcul
tur
esbecomebar
ri
erst
ochangewhensomet
hingnewi
s
i
ntroduced.

• Badcul
tur
escant
arni
shi
mageoft
hef
ir
m.

• I
tmayr
esul
tinhi
ghl
evelofconf
li
ctwi
thi
ntheor
gani
sat
ion.

I
nter
nat
ionalBusi
ness

• Int
ernat
ionalt
radei
nvol
vesexpor
tingandi
mpor
ti
ng,t
hesal
eandbuyi
ng
ofgoodsto/fr
om ot
hercount
ri
es.

• Int
ernati
onalbusi
nessi
nvol
vesset
ti
ngupbusi
nessi
nter
est
sinsever
al
countri
es.

• The parent company becomes a mul

ti
nat
ional cor
por
ati
on wi
th
subsi
diar
iesi
nmanycountri
es.

Benef
it
stoCount
ri
esofI
nter
nat
ionalTr
ade

• Creat
esspeciali
zati
on.Countri
eswillconcentr
ateon providi
ng t
hose
goodst heyarebestatpr oduci
ngandi mporti
ngthoset heyareless
eff
ici
entatpr
oducing.Thi
siscall
edcomparati
veadvant
age.

• Li
vingst
andar
dsofal
ltr
adi
ngcount
ri
esi
ncr
ease.

• I
ncreasedcompeti
ti
on.I
mporti
nggoodsincr
easesdomest
iccompet
it
ion
l
eadingtol
owpricesandimpr
ovedqual
it
y.

• Great
erchoi
ces.I
nter
nat
ionalt
radeoffer
sconsumersawidesel
ect
ionof
goodstochoosef
rom.Thisimprovesconsumerchoi
ces.

• I
timpr
ovesi
nter
nat
ionalr
elat
ionshi
psbet
weencount
ri
es.

• I
tcr
eat
esmar
ket
sforexpor
ter
s.

Pr
obl
emsofI
nter
nat
ionalTr
ade

• Lossoff or
eigncurr
encyifimpor
tsexceedexpor
tsf
orsever
alyear
s
(bal
anceofpaymentdef
ici
t)
 • Lossofout
putandj
obsf
rom f
ir
mst
hatcannotcompet
ewi
thf
orei
gn
goods.

• Inf
antfi
rmsmayf i
nd itdi
ff
icul
tto sur
vivef
orei
gn compet
it
ion.Thi
s
aff
ect
slocali
nvest
ments.

• I
tcanr
esul
tindumpi
ngbysomef
ir
mst
oel
imi
nat
elocalcompet
it
ion.

• Itcanresul
tinunemploymentsi
ncesomef
ir
msar
efor
cedt
ocl
ose,
they
cannotmatchwithfor
eigncompeti
tor
s.

Fr
eeTr
ade

• I
tisinter
nati
onalt
rade thati
s all
owed t
otake pl
ace wi
thoutany
r
est
ri
cti
onssuchast
arif
fsandquot
as.

Pr
otect
ioni
sm

• Gover
nment
srest
ri
ctt
radef
ort
hef
oll
owi
ngr
easons:

• Tomai
ntai
nbal
anceofpaymentatf
avour
abl
elevel
s.

• Topr
otecti
nfanti
ndust
ri
es.

• Toear
nrevenuef
ort
hest
ate.

• Tosaf
eguar
ddomest
icempl
oyment
.

• Topr
eventdumpi
ngofi
nfer
iorgoods

Thef
oll
owi
ngr
est
ri
cti
onscanbeused:

1.Tar
if
fs

• Thesear
etaxesimposedonimport
edgoods.Theydonotst
opt
hegoods
fr
om ent
eri
ngthecountr
ybutmakesthem expensi
ve.

2.Quot
as

• Thi
sisamaxi
mum l
imi
tont
hephysi
calquant
it
yofgoodst
hatcanbe
i
mport
ed.

3.Fi
nanci
alSubsi
dies

• Somegovernmentsgi
vefi
nanci
alsubsidi
estolocalf
ir
mst ohel
pthem
meetproduct
ioncost
.Thi
sprovidesthefir
m withapr i
cecompet
it
ive
advant
age.
4.Vol
unt
aryExpor
tsLi
mit
s

• Anexport
ingcountr
ymayagr eetoli
mitt
hequanti
tyofgoodst
obesol
d
t
oanotherpossi
blytopr
eventtar
if
fsandquot
astobeimposed.

5.Embar
go

• Thi
sisat
otal
banofi
mpor
tsf
rom cer
tai
ncount
ri
es.

6.Gl
obal
izat
ion

• Referst
ot hegreaterfr
eemovementofgoods,capit
alandpeoplear
ound
t
he wor ld.Free t r
ade and use ofthe i
nternethave reduced t
he
i
nternat
ionaldi
stances.

Advant
agesofGl
obal
izat
ion

• Mor
echoi
cesf
orcust
omer
s.

• Compet
it
ionf
rom f
orei
gngoodsr
educest
hepr
icesoft
hegoods.

• I
ncr
easedi
nvest
ment
soradvancedt
echnol
ogi
escomi
ngf
rom out
side.

• Global
izat
ion al
so i
ncr
eases communi
cat
ion and t
ranspor
tbet
ween
countr
ies

• Wit
ht hefreemovementofl abour,t
hefi
rm canempl oyorhi
reski
ll
ed
worker
sf r
om othercountr
iesandhencethatincreasest
hecompet
ence
oft
hef i
rm.Thoseworkerscanal sobr
ingi
nnewi deas.

• Thefi
rm al
sobenefi
tfr
om theuseofi
nter
netformar
ket
ingt
hei
rpr
oduct
s
andsear
chf ormar
ketstosel
lthei
rpr
oducts.

Di
sadvant
agesofGl
obal
izat
ion

• I
ntensecompet
it
ionf
rom f
orei
gnf
ir
mscanaf
fecti
nfantf
ir
msorl
ocal
f
ir
ms.

• Expl
oit
ati
onofwor
ker
s.

• Somef i
rmsmightdumpt
hei
rpr
oduct
sinot
hercount
ri
ese.
g.Japanese
secondhandcar
s

Mul
ti
nat
ionalBusi
nesses

• Thesear
ecompanieswhichoperat
ei nmorethanonecountr
yeither
thr
oughabr
anchesorasubsi
diar
ye.g.Del
tacor
por
ati
on,
Barcl
aysbank,
 pr
icewat
erhousecooper
set
c.

• Thesearecompanieswi
thheadof
fi
cesi
nonecount
ryandsubsi
diar
ies
i
nseveralcount
ri
es.

• Largemulti
nat
ional
sar
ecommonl
yregi
ster
edi
nmor
ethanonest
ock
exchange.

• Multi
nat
ionalcorpor
ati
onsempl
oyexpat
ri
atesandhavedi
rect
orsf
rom
sever
alcountr
ies.

WhyBecomeMul
ti
nat
ionalBusi
ness

• Thecompanywi l
lbenefi
tfrom bet
termarketi
nfor
mati
ononconsumer
pref
erences,low tr
ansportcostsf orf
ini
shed goods and may gai
n
customerloyal
ty.

• Byoper
ati
ngl
ocal
ly,
mul
ti
nat
ionalcompani
esavoi
dtr
ader
est
ri
cti
ons.

• Themulti
nat
ionalcompani
esmaywantt
obeneart
hesour
cesofr
aw
mater
ial
s.

• Multi
nati
onalcompaniesmaybenef i
tfr
om l
ow labourcost
sduetoan
abundantsupplyoflabour
,cheaprentandper
hapsgovernmentgr
ant
s
andtaxcutstoencouragei
nvest
ments.

Reasonswhymul
ti
nat
ionalcompani
esmi
ghtl
ocat
einot
hercount
ri
es

• Favour
abl
epol
it
icalenvi
ronment

• Mar
ketavai
labi
li
ty

• Avai
labi
li
tyofr
awmat
eri
als

• Avai
labi
li
tyofcheapl
abour

• Li
tt
leornogover
nmenti
nter
vent
ion

• Tof
aci
li
tat
etr
ade

• Favour
abl
ecl
imat
e

Possi
blepr
obl
emsf
orMul
ti
nat
ionalCompani
es

• Ther
emaybepoorcommuni
cat
ionl
inkswi
thheadof
fi
ces.
 • Cult
uralandlanguagedi
ff
erenceswi
thl
ocalwor
ker
s,cust
omer
sandt
he
government.

• Locallaborfor
ceisli
kel
ytobeunski
ll
edr
esul
ti
ngi
nhi
ghi
nvest
menti
n
thetr
ainingofempl
oyees.

• Coordi
nat
ion wi
th pl
ant
selsewher
eneedsto becar
efull
yplanned t
o
avoi
dproduci
ngpoorl
ycompeti
ngproduct
sonwor
ldmarket
s.

Benef
it
sofMul
ti
nat
ionalCompani
est
oHostCompani
es

• Tot
alnat
ionalout
putoft
hecount
rymayi
ncr
easeGDP.

• Managementexper
ti
sei nthecommuni
tymayi
mpr
ovei
flocal
srepl
ace
f
orei
gnsupervi
sor
saftertr
aini
ng.

• Empl
oymentiscreat
edifmult
inat
ionalcompaniesengagei
nlocall
abour
andt
rai
ningwil
limpr
ovethequali
tyandeffi
ciencyofl
ocal
s.

• Theybr
ingf
orei
gncur
rencywhenset
ti
ngupi
nthehostcount
ry.

• Advancedt
echnol
ogyi
sal
sobr
oughti
ntot
hehostcount
ry.

• Localf
ir
mscanbenefi
tfr
om suppl
yingr
awmat er
ial
sandcomponent
sof
thenewfir
ms,
creat
ingj
obsandgenerat
ingi
ncome.

• Taxr
evenuet
othegover
nmentwi
lli
ncr
ease.

• They engage i n cor

porat
e soci
al r
esponsi
bil
it
y, f
or exampl
e,
i
nfrast
ruct
uraldevel
opment
s.

• I
tcr
eat
esi
nter
nat
ionalr
elat
ions

• Tr
aini
ngofl
ocall
abour

• Devel
opmentofi
nfr
ast
ruct
ure

Pr
obl
emsofMul
ti
nat
ionalCompani
est
oHostCount
ri
es

• Localbusi
nessesmaybef
orcedt
ocl
oseduet
oinf
eri
orequi
pment
.

• Expl
oit
ati
on oflocalnatur
alr
esources.They have l
it
tl
ei ncent
ive t
o
conser
venat
uralresour
cesast
heycanr el
ocat
etoothercountr
ies.

• Di
stor
ti
on oflocalcul
tur
e by t
he powerofadver t
isi
ng and ot
her
pr
omotionst
hroughsemi-
nudecelebr
it
ies,f
orexampl
e,J.Lopezand
Madonna.
 • Exploit
ationofl
ocall
aborthr
oughlowpayf orl
ongworki
nghour
s.Some
multinati
onalcompanies do notstick t
o heal
th,l
abourand saf
ety
regulati
onsanddonotofferi
ncent
ivessuchaspensi
ons.

• Poll
uti
onmaybeathi gherl
evelthanisper
mit
tedinthehomecountry.
Thiscouldbeduetor el
axedrulesofthemulti
nat
ionalor
gani
sat
ion’
s
economicmuscl
enegati
veexter
nali
ti
es.

• Somemul t
inati
onalcompani
esbecomei
nvol
vedi
nlocalpol
it
icsandmay
sponsorr
ebels.

• Profi
tsarer
epatr
iat
edt
ot hei
rhomecountri
es,t
hushostcount
ri
esmay
experi
enceadecr
easei
ntheirGDPasassumed.

• Topposi
ti
onsar
ereser
vedf
orf
orei
gner
s

Reasons why St at
e mi ght wi
sh t
o Cont
rol Busi
ness Oper
ati
ons of
Multi
nat
ionalCompanies

• Tocont
rolt
heenvi
ronmentandr
esour
ces.

• Topr
otectpol
it
icali
nter
est
s.

• Toensur
elong-
ter
m cont
ri
but
ions.

• Topr
otectt
hei
nter
estofempl
oyees.

• Topr
otectt
hebal
anceoft
heeconomy.

• Topr
otecti
nter
est
sofexi
sti
ngbusi
nesses.

• Toensur
ebenef
it
stot
hebestoft
hecount
ry.

• Tomai
ntai
nthel
ocalcul
tur
e

Gover
nmentAssi
stancef
orExpor
ter
s

Thegover
nmentcanassi
stexpor
tst
hrought
hef
oll
owi
ngways

• I
nfor
mat
ionandadvi
ceoni
nter
nat
ionalmar
kett
hroughZI
MTRADE.

• Low i
nter
estl
oanst
hroughSmal
lEnt
erpr
isesDevel
opmentCor
por
ati
on
(SEDCO).

• Taxexempt
ion.Fir
msinvolvedinexpor
tbusi
nessar
etaxedatl
ower
rat
esf
orcer
tai
nlevel
sofexport
s.
 • Consul
arof
fici
alsar ebasedi
nsever
alcount
ri
esar
oundt
hegl
obet
o
pr
omotefor
eigntrade.

• Tradeexhi
bit
ions,f
orexampl
e,t
heZimbabweInt
ernati
onalTradeFair
(ZI
TF)i
sanannualexhi
bit
iont
ohel
pfi
rm’
saccesst
of or
eigncustomer
s.

Pr
obl
emsFacedbyFi
rmswhenExpor
ti
ngf
ort
heFi
rstTi
me

• Insuf
fici
entcommitmentbytopmanagerst
oover
comei
nit
ialdi
ff
icul
ti
es
andfinanci
alrequi
rement
sforexpor
ti
ng.

• I
nsuf
fi
cientcar
einsel
ect
ingf
orei
gnagent
sanddi
str
ibut
ors.

• Fai
luretoobt ai
nqualif
iedexportcounsel
ingandtodevel
opamaster
i
nternat
ionalmarket
ingplanbef
orestar
ti
nganexpor
ti
ngbusiness.

• Neglecti
ngexportbusi
nesswhendomesti
cmarketexper
iencesaboom.
Thisisaresul
tofthefi
rm vi
ewi
ngtheexpor
tmarketasaresidualmar
ket
forextr
aoutput
.

• Fai
lur
et opr
intwarr
antymessages,namesofpr
oduct
sandi
nst
ruct
ions
i
nlocall
yunderst
oodlanguages.

• Inabi
li
tyt
oengageanexportmanagementcompanytoconductthefi
rm’s
forei
gnbusinesswheni
tisobvi
ousitsownpersonnelcannotunder
take
suchacti
vit
ies.

• Fail
uretomodi f
yproductst
omeetr egul
ati
onsorcul
tur
alpref
erencesof
othercount
ries.Nat
ionsexhi
bitdi
versi
fi
edcult
urest
hatrequi
refir
mst o
modifythei
rproduct
st omeetl
ocaldemands.

• Fail
uretoconsiderl
icensi
ngorjoi
ntventur
ear
rangement
stoent
ert
hose
countr
iesprot
ectedbyi mpor
trest
ri
cti
ons.

De-
Int
egr
ati
on

• Iti
saprocesswher
ebyanorgani
sat
ionr
educest
heact
ivi
ti
esr
athert
han
expandi
nordert
orai
sefi
nance.

For
msofDe-
Int
egr
ati
on

Ther
ear
efi
vef
ormsofdei
ntegr
ati
onandt
hesear
eexpl
ainbel
ow

• Divest
ment– Thisi
nvol
vest
hesel
li
ng ofa subsi
diar
yorpartofa
company.I
tisdonei
nordert
ogetr
idofthepart
soft heor
gani
sat
ion
 whi
char
enol
ongerpr
ofi
tabl
e.

• Contr
act
ingOut /
Sub-Contract
ion– I
tist hehiringoutoft heser vi
ces
mainl
ynon- coreacti
vit
iessuchascat er
ing,cleaningandt ransportso
t
hattheorganisati
onwillbeablet
oconcentrat
eonmaj oract
ivi
ties.

• ManagementBuy-Out(
MBO)–I tisaprocesswherebytheor
ganisat
ion
gi
vesanoppor
tunit
ytothewor
kerstobuysharessothatt
heywil
lbepart
oft
heshar
eholder
s.

• ManagementBuy-In(MBI
)– Itisapr ocesswher
ebytheorganisat
ion
gi
ves an oppor
tuni
tyto out
side membersto buy shar
es fr
om t he
or
gani
sati
on.

• De-
Merger– I
tist
hecr
eat
ionoft
wocompani
esoutofoneexi
sti
ng
company.

Busi
nessEnvi
ronment

Ext
ernalI
nfl
uencesonBusi
nessAct
ivi
ty(
MACRO)

• Thesear
efactor
swhi
chaf
fectt
hebusi
nessandar
ebeyondt
hebusi
ness’
owncontr
ol.

• Manyofthefactorsareconstr
aint
sinthesensethattheymayl
imi
tthe
nat
ureofdeci
sionsthatbusi
nessmanagerscantake.

1.LegalConst
rai
ntsonBusi
nessAct
ivi
ty

• I
nmostcount
ri
est
hesef
alli
ntot
hemai
ncat
egor
ies

• Mi
nimum wages.

• Envi
ronmentpr
otect
ionl
aws.

• Pr
ici
ngcommi
ssi
on.

• Empl
oyer
sandempl
oyeesr
elat
ionsatwor
k.

• Consumerr
ight
s,l
awspr
otect
ingcust
omer
s.

• Busi
nesscompet
it
ion.Set
ti
ngl
awsr
est
ri
cti
ngmonopol
ies.

• Locat
ionofbusi
nessandsomeot
hergover
nmentpol
ici
es.

Negat
iveI
mpactofLegalConst
rai
ntsonBusi
ness
 • Thefi
rm mi
ghtsuff
erhighwagecost
siflessthant
hemi
nimum wage
wasbei
ngpai
dbeforet
hislawwasi
ntr
oduced.

• Cost
sofpr
otect
ivecl
othi
ngandi
nsur
ancet
omeetheal
thandsaf
ety
l
aws.

• Thr
oughi
ncr
easedcompet
it
ion,
qual
it
yforcust
omer
simpr
oves.

• Provi
decustomerswi
thconf
idencei
nthef
ir
m,f
orexampl
e,t
heywi
llbe
assur
edthatdri
ver
sar
eabove25year
s.

Howevert
her
ear
eRealBenef
it
s

• Worker
swillf
eelmoresecureandhighl
yvaluediftheyar
eofferedfai
r
and cl
earemploymentcont
ract
.Thiswilll
ead to moresat
isfi
ed and
moti
vatedwor
kersandsuchworker
saremorel i
kel
ytoworkhardtohelp
busi
nessachi
eveit
sgoal
s.

• Asafewor ki
ngenvir
onmentwil
lreducet
her
iskofacci
dent
sandt
imeof
f
wor
kf ori
llheal
thandinj
ury.

• Abusinessof
feri
ngahealthyenvi
ronmentbeyondlegalrequi
rement
sis
l
ikel
ytogetahigherpr
ofi
twhichat
tract
sthebestemployees.

2.Technol
ogi
calConst
rai
nts

• Itmeans the use oft

ool
s,machi
nes and sci
ence i
n an i
ndust
ri
al
appr
oach.

Negat
iveI
mpactofTechnol
ogy

• Costs– Capit
alcostscanbesubst antial
,laborcost
sandwi llrecur
regul
arl
ywithfurt
hertechnol
ogi
caladvancement.Redundancycostsif
anyoftheexi
sti
ngstaf
fneedstobereplaced.

• Laborrelati
ons–Thesecanbedamagedifthet
echnol
ogi
calchangeis
notexplainedandpresent
edtothewor
ker
sinapositi
veway.Wor ker
s
mightsufferther
iskofj
obsecur
it
y.

• Reli
abi
li
ty–Breakdownsinanautomatedpr
oducti
onorst
ock-
handl
ing
syst
em canl
eadtothewhol
eprocessbei
nghal
ted.

Howevert
hiscanbeBenef
ici
al

• I
ncr
eases speed of pr
oduct
ion, hence out
put i
ncr
eases (
mass
 pr
oduct
ion)
.

• Bet
terandqual
it
ypr
oduct
sar
epr
oduced.

• Repl
acesvastquant
it
iesofpaperwor
k.

• I
mpr
ovesef
fect
ivenessofcommuni
cat
ion.

3.Soci
alandDemogr
aphi
cConst
rai
nts

• Thestructur
eofsoci
etyi
sconst
ant
lyevol
ving.Thechangeoccur
ri
ng
mayinclude:

• An ageing popul
ati
on wi
thr
educed bi
rt
hrat
es and l
ongerl
if
e
expect
ancy.

• Changi
ngr
olesofwomen.

• Bet
terpr
ovi
sionofeducat
ionf
aci
li
ti
es.

• Changi
ngpat
ter
nsofempl
oyment

Negat
iveI
mpactonBusi
ness

• Changingpopulati
onstr
uctur
emightaffectbusi
nessnegat
ivelyint he
sensethatbusinesswil
lhavetoconductmoreresear
chtoi nvest
igate
whatisneeded.Thisi
scost
ly.

• Agest
ruct
ureofwor
kfor
cemaychange.

Howevert
hef
ir
m maybenef
it
:

• I
fthepopul
ati
oni
ncr
easesi
twoul
dmeani
ncr
easedcust
omer
s.

• I
ncr
easednumberofwomenwor ki
ngmeani
ngi
ncr
easedl
aboursuppl
y,
t
huslabourcanbeobt
ainedcheaply.

3.Ext
ernalEconomi
cInf
luenceonBusi
nessBehavi
or

• Thestat
eofthecountry’
seconomy,thatis,t
her at
eofeconomicgr
owth,
ther
ateofpri
cei
nflat
ion,theunempl
oymentl evelandt
heexchangerat
e,
cancont
ribut
edi
rectl
ytothesuccessorfail
ureofabusiness.

Economi
cObj
ect
ivesofGover
nment
s

• Allgover
nment
s settar
getsfort
he whol
e economy and t
hese ar
e
ref
err
edtoasmacr
o-obj
ecti
ves.
 • Economi
cgr
owt
h.

• Lowr
ateofunempl
oyment
.

• Favor
abl
ebal
anceofpayment
.

• Exchanger
atest
abi
l
ity.

a.I
nfl
ati
on

• I
tisani
ncr
easei
ntheaver
agepr
icel
evelofgoodsandser
vices.

• I
tcanal
sobedef
inedast
oomuchmoneychasi
ngt
oof
ewgoods.

CausesofI
nfl
ati
on

1.CostPushCausesofI
nfl
ati
on

• Busi
nessesar
efacedwi
thhi
ghercost
sofpr
oduct
ionduet
o:

• Al
owerexchanger
atel
eadi
ngt
ori
singpr
icesofi
mpor
tedgoods.

• Wor
lddemandf
orr
awmat
eri
alsi
ncr
easespr
ices.

• Hi
ghwagedemandsf
rom empl
oyees.

• Ther
efor
e,thebusi
nesswillat
temptt
omai
ntai
npr
ofi
tmar
ginsbyr
aisi
ng
sel
li
ngpri
ce.Thi
sisinf
lat
ionar
y.

2.DemandPul
lCauses

• Thi
sisusual
lyduet oconsumerdemandr i
singduetoeconomi
cboom.
Compani
eswillr
aisepr
icestoear
nhigherpr
of i
tmar
gins.

I
mpactofI
nfl
ati
ononBusi
ness

• Realvalueofdebtowedbycompani
eswillf
all
.Sincetheval
ueofmoney
i
sf al
li
ng,adebtisrepai
dusingmoneywithlessvaluethantheor
igi
nal
l
oan.Ingeneral
,val
ueofli
abi
li
ti
eswi
llf
all
.

• Risi
ngpr
icesaf
fectasset
sheldbyt
hebusi
ness.Theval
ueofasset
s
suchasl
andandbuil
dingr
ises.

• Costincr
easescanbepassedont
oconsumer
sint
hef
orm ofi
ncr
eased
pr
ices.

• St
ockboughti
nadvanceandsol
dlat
err
esul
tini
ncr
easedmar
gins.
Pr
obl
emsf
orBusi
nesses

• St
affwi
ll
exper
ienceadecl
inei
nther
ealval
ueoft
hei
rwages.

• Consumer
sbecomepr
icesensi
ti
veandl
ookf
orbar
gai
nsandnobr
and
names.

• Rapi
dinf
lat
ionl
eadstohi
ghinterestr
ates.Hi
ghl
ygear
edcompani
eswi
ll
beunabl
etorai
secashf
orint
erestpayments.

• Cashprobl
emsariseandcompani
eswi
l
lbeunabl
etor
aisecasht
opay
fori
ncr
easedcost
s.

• Ifi
nflat
ioni
nonecountryi
shighert
haninot
hercount
ri
es,
thelocalfi
rms
wil
llosecompeti
ti
veness.Busi
nesswil
lbeunwil
li
ngtoextendcredi
tto
customers.

Dur
ingper
iodsofhi
ghi
nfl
ati
oncompani
eswi
ll

• Reducei
nvest
mentspendi
ng.

• Reducel
aborcost
s.

• Cutbor
rowi
ngt
olevel
satwhi
cht
hecur
renti
nter
estr
atear
emanageabl
e.

• Cut
ti
ngprofi
tmar
ginst
oli
mitt
hei
rownpr
icer
isest
ost
ayascompet
it
ive
aspossi
ble.

• Reduci
ngt
imeper
iodf
orcust
omer
stopay.

Def
lat
ion

• I
tisaf
alli
ntheaver
agepr
icel
evelofgoodsandser
vices.

• I
fa$1buysmor egoodsthi
syearthanitdi
dlastyear,t
hent
heval
ueof
moneyhasi
ncr
eased.Thi
smightbecausedbydeflat
ion.

Causes of Gover
nmentPol
icy I
mpactonBusi nessSt r
ategy
I
nflat
ion f
orGover nmentPolicyAi ming
t
oControlInfl
ati
on
Cost–Push • High exchange r ate • Thehi ghexchanger ate
poli
cy.Thi s could be wi llmakeexpor tsless
assisted by hi gher compet it
ive. Busi ness
i
nterestratessetbyt he coul d switch to
centralbank. concent r
ating on
• Discourage high wage domest icmar kets.
sett
lement , may use • Hi ghinterestr at
eswi l
l
 publ
ic sect
or wor
ker
s discour age busi ness
asanexample. borrowi ng and
i
nvest ment s.Busi ness
may cancel
i
nvest ment spr oj ects.
• Consumer cr edi t wi l
l
also be di scour aged
reduci ng demand
especi all
y f
or
expensi vegoods.
• Businessi sl i
kel yt obe
i
nf l
uenced by
gover nment vi ews on
wageset t
lement s.They
wi l
lpaywhati sneeded
to at tr
act and keep
staff, al ong as t he
business r emai ns
profitable.
Demand–Pul
l • Pol i
cies designed t o • Higher t axes wi l
l
reduce aggregate reduce consumer
demandsuchashi gher demand,i fpr ogr essive
tax r ates and l ower taxes i ncreased,t here
gover nmentspending. couldbeaswi ngaway
• Ce ntr
albankisl i
kelyto from l uxur y goods.
rai
sei nter
estrat
es. Business may change
their pr oduct mi x t o
offer l ess expensi ve
goods.
• Lower gover nment
spendi ng coul d hi t
certaini ndust ries ver y
hard. For exampl e,
defense equi pment
manuf acturers, hospi tal
equipment
manuf acturers. These
fir
ms may at t
empt
foreignmar ket s.

b.Unempl
oyment

• Exi
stswhenmembersofthewor
kingpopul
ati
onar
ewi
ll
ingandabl
eto
work,
butunabl
etof
indj
obs.

CausesofUnempl
oyment
Causes Def
ini
ti
on GovernmentPol i
ciestowards
Causes
Cycl
ical • Une mployment • Tr ytomanagesavi ngs
unemployment resulti
ng f rom l ow toavoidfl
uctuati
onsof
demandf orgoodsand busi
nesscycles.
services i
n t
he • Tr yt o keep infl
ati
on
economy dur i
ng a l
ow.
period of small • Ma i
ntai
nshighincome.
economi cgrowth.

CostofUnempl
oyment

• Theeconomycoul dbepr oducingmor

egoodsandser
viceswhi
chwi
ll
thenbeavai
labl
eforconsumption.

• The costofsupporti
ng unemployed wor ker
s and t
hei
rfami
li
es i
s
subst
anti
al,
ispai
dforoutofgener
altaxat
ion.

• Ther
ewi
llbel
ossofi
ncomeandl
owerl
ivi
ngst
andar
ds.

c.ExchangeRat
es

• I
tist
hepr
iceofonecur
rencyi
nter
msofanot
her
.

Depr
eci
ati
onoft
heCur
rency

• Af al
lintheexternalval
ueofacur rencyasmeasur
edbyit
sexchange
rat
eagainstothercurr
encies.If$1f
all
sinval
uef
rom £2t
o£1.5t
henthe
val
ueofadol l
arhasdepreciated.

TheDomest
icFi
rmswhoar
eli
kel
ytoSuf
ferf
rom Depr
eci
ati
on

• Producer
sthatrel
yoni mport
edr
aw mat
eri
als.Thei
rcost
swi
llr
iseand
reducepr
icecompeti
ti
veness.

• Retai
lersthatbuyforei
gncur r
encysuppli
esespeci
all
yift
herearecl
ose
subst
itutes.Thepri
ceoft hesesubsti
tut
eswillr
iseandret
ail
erswil
lbe
for
cedt ofindl
ocalsuppl
iers.

Howevert
hosewhobenef
itar
e

• Home-basedexpor
ter
swhocannow r educethei
rpr i
cesonover seas
market
s.Thi
sshoul
dincr
easei
nexpor
tsandexpansionofthebusi
ness.

• Busi
nesses t
hatsel
lin domest
ic mar
ket
s wi
llexper
ience l
ess pr
ice
 compl
eti
onf
rom i
mpor
ter
s.

Appr
eci
ati
on

• Itisa riseintheexternalvalueofa cur

rencyasmeasur
ed byi
ts
exchangerat
eagai
nstothercurr
enci
es.

d.Busi
nessCycl
es

• Thesear er egul
arswi ngsi
n economicacti
vit
y.I
tvar i
esfrom boom
condit
ions (hi
gh demand and rapi
d gr
owth)torecessi
on when tot
al
nati
onaloutputdecl
ines.

Recessi
on

• Aper
iodofsi
xmont
hsormor
eofdecl
ini
ngr
ealGDP.

Ef
fect
sonBusi
ness

• Si
nceout
putwi
llbef
lowi
ng,
growt
hofbusi
nessi
shi
nder
ed.

• Unemploymenti ncr
easesandi
ncomef
all
s,sodemandf
orgoodsand
ser
vicesdecl
ines.

• Demandf
ori
nfer
iorgoodscoul
dact
ual
lyi
ncr
ease.

Et
hicalConst
rai
nts

• Thesear
edosanddon’
ts.

• Theyref
ertoanythi
ngref
erredtoasbei
ngj
ustorunj
ust
,fai
rorunf
air
,
wrongorri
ghtandgoodorbad.

• I
tconsi
der
sissueson:

• Typeofadver
ti
sement
s.

• Tr
eat
mentofempl
oyees.

• Test
ingempl
oyeesf
orHI
Vagai
nstt
hei
rwi
ll
.

• Rel
igi
ousi
ssues.

Et
hicalFact
ors

• Cor
rupt
ion.

• Di
scr
imi
nat
ion.
 • Nepot
ism.

I
nter
nalConst
rai
nts(
Micr
o)

• Ref
erst
ofact
orswhi
chaf
fectbusi
nesswhi
chabusi
nesscancont
rol
.

1.Owner
s

• Sharehol
der
s ofa bi g companyused to be passi
ve,l
ett
ing t
he top
managementt orunthei
rbusinesses.Owner
scanexpecthigherret
urns
whichmightconstr
aintt
hefir
m.

2.Empl
oyees

3.Manager
s

Economi
cPol
ici
es

1.For
eignTr
adePol
icy

• Thegovernmentcanusei
mpor
tdut
iesorexchanger
atest
oinf
luence
for
eignt
rade.

• Importduti
esar
etaxeslevi
edoni mpor
tedgoods,byr
aisi
ngt
ari
ff
s,the
governmentcanreducethevolumeofi mpor
tsintot
hecount
rysince
tar
if
fsmakesimport
sexpensive.

• Thi
s,intur
nf or
cesconsumerst
obuyl ocall
ymanufact
uredgoods.Thi
s
mayleadtothecol
lapseofi
mportdependentfi
rms.

2.Fi
scalPol
icy

• Isconcer
nedwithdecisionsaboutgovernmentexpendit
ure,taxes,r
ates
and government borrowings. These oper
ate largel
y t hrough the
gover
nmentannualbudgetdecisi
ons.

• Major expendit
ure programs incl
ude soci
alor der
,healt
h ser
vices,
educat
ion,const r
uct
ion of roads and defense.Gover
nmentr ai
ses
fi
nancefortheseacti
vit
iesthr
oughtaxat
ion.

3.Monet
aryPol
icy

• I
sconcer
nedwiththedeci
sionsaboutt
her
ateofi
nter
est
sandsuppl
yof
moneyi
ntheeconomy.

• I
finf
lat
ioni
slow andi
sfor
ecastt
oremai
nbel
ow gover
nmentt
arget
s
 t
hent
hecent
ral
bankmaydeci
det
oloweri
nter
estr
ates.

• Thi
shast
hreemai
nimpact
sonbusi
ness:

• Incr
easeint
erestcost
sandr
educespr
ofi
tsf
orbusi
nesst
hathave
highdebt
s.

• Reducesconsumerbor
rowi
ngandt
hisr
educesdemandf
orgoods
boughtoncr
edit
.

• I
ttendst
oleadt
oanappr
eci
ati
onoft
hecount
ry’
sexchanger
ates.

4.ExchangeRat
esPol
icy

• Gover
nmentcanal
lowexchanger
atest
ofl
oatorf
ixi
t.

• Thegover
nmentcandeval
uethecurrencytobusinesseswhichrel
yon
i
mport
s.Deval
uat
ioni
sadisadvant
agesincei
trai
sest hepr
iceofi
mport
s.

5indigeni
zat
ion -itis a process ofi
ncr
easi
ng t
he par
ti
cipat
ion of
mar
ginali
zedgroupsi
ntheeconomy

Iti
sadel i
ber
ateinvolvementofindi
genousZi
mbabweansi
ntheeconomic
act
ivi
ti
estowhi cht heyhadnoaccessi nor
dertoensur
etheequitabl
e
ownershi
pofthenati
on’ sr
esour
ce

I
tisbenef
ici
alt
othecount
ryi
nthef
oll
owi
ngways

• I
tmayr esul
tineconomicgrowththusr
aisi
ngt
hei
ncomel
evel
soft
he
l
ocalpeopl
eandpovert
yreduct
ion

• Itl
eadtoempl
oymentequi
tyandcont
rol
,owner
shi
pofbusi
nessand
asset
s

• I
tcr
eat
esoppor
tuni
ti
esf
ort
hel
ocalpeopl
etor
unbusi
nesses

• I
tal
sospr
eadst
hebenef
it
sofeconomi
cgr
owt
htoever
yone

Howeveriftheindigenizat
ionpoli
cyofacountryi
sstr
icti
tmayr
esul
tin
di
scouragi
ng for
eign investor
s,cl
osureofanumberofcompani
esthus
l
eadi
ngt ohighunemploymentandi ncr
easei
npover
ty
I
MPACTOFI
CTONBUSI
NESSANDI
TSENVI
RONMENT

• Faci
li
tateef
fect
ivecommuni cat
ionbetweeni
ndi
vidual
sorgr
oupst
hat
arephysi
cal
lydi
stantf
rom eachother
.

• Maintai
neffecti
velevelofcommuni cati
onamongt hewor kf
orce,send
marketi
ngcommuni cationmessagestocurrentandpotent
ialcustomers,
measurethelevelofcustomersatisf
acti
on,makesales,engageint eam
bui
ldi
nginit
iat
ives,
increaset
helevelofemployeemoral
eet c.

• Thecr eati
onofnew sal eschannel
s.Thet radit
ionalsaleschannel
sf or
businesseswer elimi
tedtoconducti
ngsal esont hestoreandovert he
phone.However ,withtheadventofint
ernet,todaybusinesseshavet he
possibil
it
yofsel l
ingtheirpr
oductsandser vi
cesonl i
ne,andt her
efore
off
eringtheirpr
oductsandservi
cesintheglobalmar ket
place.

• Enhancethecustomerr el
ati
onshipaspectofbusiness.Thishasr esult
ed
i
ne- mailbei
ngadopt edasoneoft hemostef fectivetool
sint ermsof
cust
omerr elat
ionshipmanagement .Somebanki ngcor por
ati
onshave
adopted e-
mailas an i ntegr
alcomponentofcust omerr elati
onship
management .Theircustomersr ecei
ve automatic e-mailnoti
ficati
ons
aboutanychangesr el
atedt othei
ronlinebanki ng,aswel las,onl i
ne
noti
fi
cati
onsofcor r
espondencesenttothei
ronli
nebanki ng.

• Identi
fi
cati
on ofthelevelofcust omersat
isf
acti
on through obt
aining
customer feedback. Speci
fical
ly,t
he major
ity of large,developed
compani esemployvariousformsofinf
ormati
ontechnologyinor derto
 obtai
ncustomerfeedbackt
hatcanbeusedt
oimpr
ovet
hequal
it
yof
product
sandser
vices.

• Enablednew f or
msofwor kingpat t
ernstoevolve,thatincludeswor king
from homeandot herlocat
ions.Wor ki
ngfrom homei smadepossi bl
eby
i
nt er
net, e-mail
ing, Skype, instant messaging and ot her related
technologies.The mai n advantages ofwor king from home i nclude
signif
icantcostsavingforbothcompanyandempl oyees,increasedlevel
ofperformance,aswel lasachievi
ngbet t
erwork-li
febalance.

Chapt
er2

PROJECTMANAGEMENTANDBUSI
NESSPLANNI
NG

QUESTI
ONS

1.Def
inet
hef
oll
owi
ngt
erms

a) Pr
oject
(2)

b) Pr
oject management
(2)

c) Busi
ness pl
an
(2)
d) Busi
ness pl
anni
ng
(2)

2) What ar
e t
he cont
ent
s of t
he busi
ness pl
an?
(10)

3) How usef
ul i
s busi
ness pl
anni
ng t
o manuf
act
uri
ng f
ir
m?
(25)

4)Eval
uat
etherel
evanceofpr
ojectmanagementt
ofi
rmi
ntheconst
ruct
ion
i
ndustr
y (
25)

5) Prepar
e a busi
ness pl
an f
or a smal
l medi
um ent
erpr
ise
(25)

6) When can a busi

ness car
ry out a busi
ness pl
an
(6)
PROJECTMANAGEMENTANDBUSI
NESSPLANNI
NG

Pr
ojectManagement

A projectisa( t
emporar
y)sequence ofunique,compl
ex,and connect
ed
acti
vit
ieshavingonegoalorpurposeandthatmustbecomplet
edbyspecifi
c
ti
me, wit
hinbudget
,andaccor
dingtospeci
fi
cat
ion.

Pr
ojectmanagementist heprocessofscoping,pl
anni
ng,staf
fi
ng,or
gani
zing,
di
rect
ing,and cont
rol
li
ng the devel
opmentofan accept abl
e syst
em ata
mini
mum costwithi
naspecifi
edtimeframe.

Measur
esofPr
ojectSuccess

• Ther
esul
ti
ngi
nfor
mat
ionsyst
em i
saccept
abl
etot
hecust
omer
.

• Thesyst
em wasdel
iver
ed“
ont
ime”
.

• Thesystem wasdeli
ver
ed “
withi
n budget
”.Thesystem development
processhadami
nimali
mpactonongoingbusi
nessoperat
ions.

CausesofPr
ojectFai
lur
e

• Fai
lur
etoest
abl
ishupper
-managementcommi
tmentt
othepr
oject
.

• Lack of organi
zat
ion’
s commi
tment t
o t
he syst
em devel
opment
methodol
ogy.

• Taki
ng shortcut
s t
hrough or ar
ound t
he syst
em devel
opment
methodol
ogy.

• Poorexpect
ati
onsmanagement
.

• Pr
emat
urecommi
tmentt
oaf
ixedbudgetandschedul
e.

• Poorest
imat
ingt
echni
ques.
 • Over
-opt
imi
sm.

• Themyt
hicalman-
mont
h.

• I
nadequat
epeopl
emanagementski
ll
s.

• Fai
lur
etoadaptt
obusi
nesschange.

• I
nsuf
fi
cientr
esour
ces.

• Fai
lur
eto“
managet
othepl
an”
.

Whyi
sSof
twar
ePr
ojectManagementDi
ff
icul
t?

• Thepr
oducti
sint
angi
ble.

• Iti
shardtomonit
orprogressandassessqual
it
y.Nocl
earunder
standi
ng
oftheunder
lyi
ngprocess.

• Rel
yonpr
ocessmodel
s.

• Sof
twar
esyst
emsar
eof
ten‘
one-
off
’pr
oject
.

• Cr
it
ical
andi
nnovat
ivei
nnat
ure.

• Makesi
thar
dtoaccumul
ateexper
ienceandt
opr
oduceusef
uldat
a.

Pr
ojectManagementTool
sandTechni
ques

• AProgr
am Eval
uati
onandReviewTechnique(PERT)charti
sagr aphi
cal
net
work modelthatdepi
cts a pr
oject
’stasks and t
he rel
ati
onshi
ps
bet
weenthoset
asks.

• AGanttchartisasimpl
ehor i
zontalbarchar
tthatdepict
spr oj
ecttasks
agai
nstacalendar
.Eachbarrepresent
sanamedpr ojecttask.Thetasks
areli
stedverti
cal
lyi
nt heleft
-handcolumn.Thehor i
zontalaxi
si sa
cal
endarti
meli
ne.

Joi
ntPr
ojectPl
anni
ngSt
rat
egy

• Jointpr oj
ectplanning (JPP)is a strategy wherein al
lstakehol
der s
(syst
em owner s,users,analyst
s,designers,andbui l
ders)i
napr oject
parti
cipatein a one-t
o-t
hree daypr oj
ectmanagementwor kshop,t he
resul
tofwhi ch i
sconsensusagr eementon pr oj
ectscope,schedul e,
resources,andbudget .Ofcourse,subsequentwor kshopsormeet i
ngs
mayber equi
redtoadjustscope,budget,andschedule.
Pr
ojectManagementFunct
ions

• Scopi
ng.

• Pl
anni
ng.

• Est
imat
ing.

• Schedul
ing.

• Or
gani
zing.

• Di
rect
ing.

• Cont
rol
li
ng.

• Cl
osi
ng.

Act
ivi
ty1:Negot
iat
eScope

• Scopedefinestheboundar i
esofapr oject
,thatis,whatpartofthe
busi
nessistobestudied,anal
yzed,
desi
gned,const
ruct
ed,i
mplement
ed,
andult
imatel
yimproved?

• Pr
oduct
.

• Qual
it
y.

• Ti
me.

• Cost
.

• Resour
ces.

• A statementofwor kis a narr

ati
ve descr
ipt
ion oft
he workt o be
perf
ormed as partofa pr oj
ect
.Common synonyms i ncl
ude scope
stat
ement ,proj
ect def
ini
ti
on,proj
ect overvi
ew,and document of
understandi
ng.

Act
ivi
ty2:I
dent
if
yTasks

• Awor kbr
eakdownstructur
e(WBS)isahier
archi
caldecomposi
ti
onoft
he
pr
ojecti
ntophases,
activi
ti
es,
andtasks.

• Mi
lestonesareevent
st hatsi
gnif
ytheaccompl
ishmentorcompl
eti
onof
majordeli
ver
abl
esduringaproject
.
Act
ivi
ty3:Est
imat
eTaskDur
ati
ons

• Est
imatet
heminimum amountofti
meitwoul
dtaket
oper
for
mthet
ask.
Wewill
cal
lthi
stheopt
imist
icdur
ati
on(
OD).

• Est
imatet
hemaximum amountofti
meitwouldt
aket
oper
for
mthet
ask.
Wewill
callt
hist
hepessi
mist
icdur
ati
on(PD)
.

• Estimat
etheexpect
eddur
ati
on(
ED)t
hatwi
llbeneededt
oper
for
mthe
task.

• Cal
cul
atet
hemostl
ikel
ydur
ati
on(
D)asf
oll
ows:

Act
ivi
ty4:Speci
fyI
nter
taskDependenci
es

• Finish-
to-
star
t(FS)
.Thef
ini
shofonet
askt
ri
gger
sthest
artofanot
her
task.

• St
art
-t
o-st
art(
SS)
.Thest
artofonet
askt
ri
gger
sthest
artofanot
hert
ask.

• Fi
nish-
to-
fi
nish(
FF)
.Twot
asksmustf
ini
shatt
hesamet
ime.

• Start
-t
o-f
ini
sh(
SF)
.Thest
artofonet
asksi
gni
fi
est
hef
ini
shofanot
her
task.

Schedul
ingSt
rat
egi
es

• Forwardschedul ingestabli
shesaprojectstar
tdateandt henschedul es
forwar
df rom thatdat
e.Basedont hepl anneddurat
ionofr equi
redtasks,
theiri
nterdependencies,and theall
ocat i
on ofresourcest o complete
thosetasks,aproject
edpr oj
ectcompleti
ondateiscalculat
ed.

• Reverseschedulingestabl
ishesapr ojectdeadl
ineandthenschedules
backward f rom t hat dat e. Essential
ly, t
asks, thei
r durati
on,
i
nterdependenci
es,andresourcesmustbeconsi deredt
oensurethatt
he
proj
ectcanbecompl etedbythedeadline.

Act
ivi
ty5:Assi
gnResour
ces

• People–i ncl
usiveofallthesystem owners,user
s,anal
ysts,desi
gners,
buil
ders,ext
ernalagents,andcleri
calhelpthatwillbeinvolvedinthe
proj
ectinanyway, shape,orf
orm.

• Servi
ces–aservi
cesuchasaqual
it
yrevi
ewt
hatmaybechar
gedona
perusebasi
s.
 • Faci
li
ti
esandequi
pment–includi
ngal
lroomsandt
echnol
ogyt
hatwi
ll
beneededt
ocomplet
ethepr
oject
.

• Suppliesand mater
ial
s– ever
ythi
ng f
rom penci
ls,paper
,not
ebooks,
tonercart
ri
dges,
etc.

• Money–at ransl
ati
onofalloft
heabovei
ntot
hel
anguageofaccount
ing,
t
hati
s,budgeteddoll
ars.

Resour
ceLevel
ing

• Thi
sisast r
ategyusedtocorrectresourceover
-al
locat
ionsbysome
combi
nat
ionofdel
ayi
ngorspl
it
ti
ngt asks.

• Ther
ear
etwot
echni
quesf
orr
esour
cel
evel
ing:

• Taskdel
ayi
ng.

• Taskspl
it
ti
ng.

TaskSpl
it
ti
ngandDel
ayi
ng

• Thecr i
ti
calpathforapr oj
ectisthatsequenceofdependentt askst
hat
have the largestsum of mostl i
kely durati
ons.The crit
icalpath
deter
minest heearl
iestpossi
blecompleti
ondat eofthepr
oject
.

• Tasksthatareon thecrit
icalpat
h cannotbedelayed without
del
ayingtheent
ir
eproj
ectschedul
e.Toachiever
esourceleveli
ng,
cri
ti
calt
askscanonl
ybesplit.

• Theslackti
meavai l
abl
eforanynoncrit
icaltaski
stheamountofdel
ay
thatcanbetol
erat
edbetweenthestar
ti
ngt i
meandcompleti
onti
meofa
taskwit
houtcausi
ngadelayi
nt hecompleti
ondateoft
heent
ir
eproj
ect
.

• Tasksthathavesl
ackt
imecanbedel
ayedt
oachi
ever
esour
ce
l
eveli
ng.

Act
ivi
ty6:Di
rectt
heTeam Ef
for
t

• Super
visi
onr
esour
ces.

• TheDeadl
ine–ANovelaboutPr
ojectManagement
.

• TheOneMi
nut
eManager
.

• TheCar
eandFeedi
ngofMonkeys.
 • St
agesoft
eam mat
uri
ty.

Act
ivi
ty7:Moni
torandCont
rolPr
ogr
ess

• Pr
ogr
essr
epor
ti
ng.

• Changemanagement
.

• Expect
ati
onsmanagement
.

• Schedul
eadj
ust
ment
s–cr
it
icalpat
hanal
ysi
s(CPA)
.

Act
ivi
tyNet
wor
k

• Pr
ecedencer
elat
ionsamongact
ivi
ti
es.

• Twot
ypesofr
epr
esent
ati
ons:

• Act
ivi
tyonar
row(
AOA)–Event2,
Event3,
Act
ivi
ty(
2,3)
.

• Act
ivi
tyonnode(
AON)–Ar
rowt
oshowpr
ecedence.

Cr
it
icalPat
hAnal
ysi
sandSl
ackTi
me

• Usi
nginter
taskdependenci
es,
det
ermi
neever
ypossi
blepat
hthr
ought
he
pr
oject
.

• Foreachpat
h,sum t
hedur
ati
onsofal
ltasksi
nthepat
h.

• Thepat
hwi
tht
hel
ongestt
otaldur
ati
oni
sthecr
it
icalpat
h.

• Fi
ndsl
ackt
imesf
ornon-
cri
ti
calt
asks.

Busi
nessPl
anni
ng

Thebusinessplani sausefulandversati
letool
.Iti
sagui dethatcanalsobe
descr
ibed as the busi
nessman’s bestfri
end.Int oday’
s gl
obaland highly
competit
ivebusinessenvi
ronment,enter
pri
ses,whetherlar
georsmall,cannot
hopetocompeteandgr owwi t
houtproperplanni
ng.

TheI
mpor
tanceofBusi
nessPl
anni
ng

• Business pl
ans and otherpl anni
ng document s ar
e vit
alto winni
ng
agr
eementandsuppor t.Wr i
ti
ngast rong,
clearproposi
ti
oncanmeant he
di
fferencebet
weenapr ojectgoingaheadorsur vi
vingornot.Devel
opi
ng
 abusi
nesspl
anrequi
resalotofti
meandener
gy,buti
t’
sinval
uabl
efor
onepri
maryr
eason-itf
orcesyoutocomet
otermswithyourbusi
ness
i
dea.

• Thinkaboutwhatset syourbusi nessapartbef oreappr oachingpot enti

al
i
nvestorsandl enders.Developaf all
backplanandconsi derot heropt i
ons
andcont i
ngencies.Decidewhatyourbasi cbusi nessst r
ategyi s,whet her
todevelopasol idcustomerbase, goforgrowthorseekt oconst antlyre-
shapethebusi nesst oattractnew customer schasi ngnew pr oduct sor
waysofsel l
ing;thent r
ytodeci dewhatt hiswi l
lt ake,whetheri tplayst o
yourstr
engthsandwhatr esourceswi l
lber equired,especial
lyt hoseyou
don’tal
readyhave.

• Growth-basedstrat
egi
esrequi
rethegrouptobeexpert
sont hemarket
,
onindust r
yf eat
uresandtheproductsandservi
cesbeingsoughtby
cust
omer s.You can’trel
y on otherpeopleto do i
tsince i
t’
sthis
knowledgethatcanmakeorbreakabusiness.

• Onceinbusiness,keypersonnelcanbeover whelmedbyt heday-t

o-day
demandsofmanagi ng.Yettherearemanyst rat
egicdecisionst
hathave
tobemadeaswel l.Peri
odicbusinessplanningandr evi
ew canhelpt o
avoi
dsuddencr i
sesinthebusiness,expensi
veproblemsdeveloping,and
under
-per
for
manceatcr i
ti
calti
mesoroverl ongper iodsthatwi
llkil
lthe
busi
ness.

WhendoyoudoBusi
nessPl
anni
ng?

Businessplanningobvi
ousl
ytakespl
aceinavar
iet
yofwaysandforavar
ietyof
reasons.Businessesgener
all
yplanwhentheyf
indthemsel
vesi
nthefol
lowing
sit
uati
ons:

• St
art
inganewbusi
nessoract
ivi
tyorl
aunchi
nganewpr
oduct
.

• Devel
opi
ngnewst
rat
egi
est
odef
endanexi
sti
ngmar
ketposi
ti
on.

• When att
empti
ng to gr
ow t
he busi
ness ormai
ntai
n gr
owt
hrat
es i
n
changi
ngsit
uat
ions.

• Fi
ght
ingbackagai
nstnewcompet
it
orsoradver
semar
ketcondi
ti
ons.

• Regul
arr
evi
ewofact
ivi
ti
esandf
orwar
d-pl
anni
ng.

• Ri
skandcont
ingencypl
anni
ngt
ocopewi
thunf
oreseenevent
ual
it
ies.
 • Prepar
ingthi
ngsl
ikel
ytooccuri
ntheshor
t-
ter
m:ar
ecessi
on,t
ake-
over
orcampaignbyacompeti
tor
.

• Copi
ngwi
thot
herevent
s.

TheBusi
nessPl
an

Businessplanningcanbeahi ghlybenefi
cialexerci
sef ortheent repreneur
.In
ordertoderivet hedesir
edbenef it
sf r
om busi nessplanningitisi mpor t
antto
takeful
lowner shipoftheprocess,andmakei tyourownf rom beginningtoend.
Whilethisdoesnotmeant hatyoushoul dnotseekpr ofessi
onaladvi cewhen
needed,youshoul dbecareful,nottocommi tthecommonmi stakeofaski ng
otherstowrit
et heplanforyouorbei nginf
luencedbyunqual i
fi
edopi nionseven
i
fwel li
ntent
ioned.

WhoWr
it
est
heBusi
nessPl
an?

• Thechi efexecut
ive,managerorasmal lexecut
ivegroupoft hebusi
ness’
management gr oup should t ake overal
lr esponsibi
li
ty. In some
businessessmal leruni
tswillneedt owr i
tetheirowndevel opmentor
business plans,i n which case the chief executi
ve wi l
ldelegat
e
responsibil
it
ytotheservi
ceteam whileshapingitsoveral
lapproachand
conclusions.

• Thebestapproachistopdown,bot
tom up, wher
ethemanagementgroup
decidesthestrat
egy,themanagerdevel opstheplaninli
newi t
hthat
str
ategyand thewhol eprocessi
sr eviewed,changed,cor
rect
ed and
i
mpr oved,t
henre-
approved.

• The key willbe in how wellideas,strat

egies and proposals ar
e
communi cat
ed.Ajoi
nteffor
tcombini
ngthestrategi
cwitht
heoper at
ional
andbetweenmanagementandoper ati
onalpersonnel
,isagoodwayt o
getcooperat
ion,
underst
andingandcommi t
ment .

• Therei snopoi nttoplanningi fthepeoplechargedwi t

himpl ement at
ion
havenoconf idenceint hepl an,donotunder standitorhavedi ffer
ent
pri
oriti
es,leadingthem t oimpl ementthepl anint hewr ongway.Thi s
means pl anning shouldi nvolve everybody who wi l
lbe i nvolved in
i
mpl ementation,even i fit’
s onl yto hearobj ecti
ons whi ch can be
i
ncor porat
edbef orethefinalver si
onisproduced.Itshoul
dbeyourpl an.
Ifyoudouseout si
deexper ts,lookforsomeonewhounder standsyour
business,yourabi l
it
ies,the r esour
ces avail
ablet oit,its aims and
 oper
ati
ngenvi
ronment
.

ThePr
ocessofBusi
nessPl
anni
ng

• Businesspl
anningbegi
nsbydecidi
ngwhatyouaretryi
ngtoachi
eveand
theoutcomesyouar eseekingort
heproblemsyouaret r
yingt
osolve.
Having i
dent
if
ied t
hese,planni
ng pr
oceeds bya seri
es ofst
eps,as
fol
lows:

• Descr
ibeyourbusi
nessact
ivi
ti
esorpl
ans.

• Outl
inet
hecur
rentst
atusoft
hebusi
nessori
tspl
annedact
ivi
tyi
n
Year1.

• Descr
ibe t
he ext
ernalmar
ket
,anycompet
it
ion and wher
e you
pl
aceyoursel
fint
hemarket
.

• Deci
det
heobj
ect
ivesoft
hepl
anoveragi
venper
iodoft
ime.

• Devel
opst
rat
egi
esf
orachi
evi
ngt
heseobj
ect
ives.

• I
dent
if
yri
sksandoppor
tuni
ti
esofvar
iousst
rat
egi
es.

• Devel
opcopi
ngst
rat
egi
est
hatl
imi
tri
sksandexpl
oitoppor
tuni
ti
es.

• Devel
opaser
iesofwor
kingpl
ans.

• Cal
cul
atecost
sandi
ncomeaspar
tofanover
allf
inanci
alpl
an.

• Ensur
ethest
rat
egyi
ssetdowncl
ear
lyandconci
sel
y.

• Bef l
exi
ble.Part
icul
arl
ywhenest i
mat i
ngli
kel
yrisksandopport
unit
ies
youmaybef or
cedt ogo’backtothedrawi
ngboard’
,sel
ect
ingdi
ffer
ent
str
ategi
esthatmightbelessgoodbutcont
ainf
ewerri
sks.

• Theplanni
ngprocessandwr it
ingabusi
nesspl
anar eal
mostthesame
thi
ng.Documentyourplansandt hepl
anni
ngprocesswil
lhavewri
tt
en
mostofthebusi
nesspl
anf oryou.

TheCont
ent
soft
heBusi
nessPl
an

Everybusinessplanshoul
daddr essanumberoff undament ali
ssueswi
thout
whichitwouldnotbecompl et
e.Theseissuescanbegr oupedundersixmajor
areast
hatar ethepil
lar
sofeverybusi
nessacti
vit
ywhet herlargeorsmal
l.The
si
xmaj orareasare:
 • Sal
esandMar
ket
ing.

• Oper
ati
ons.

• Humanr
esour
ces.

• Fi
nance.

• Technol
ogyandI
CT.

• ManagementI
nfor
mat
ion.

TheBusi
nessPl
anFor
mat

• Inrealit
ythereisnostandardformatfort hepresent
ati
onofagood
businesspl
an.Busi
nessplansvaryincontentandsizeaccor
dingtothe
natureandsizeofthebusi
nessconcernedandont heemphasist
hatis
pl
acedoncer tai
ncr
iti
cal
areasasopposedtoothers.

Usef
ulPoi
nts

• Table2.1l i
ststheimportantel
ement sofabusi nessplanandof f
ers
somesi mplepoint
sthatneedtobet akenint
oconsi der
ati
oninr
egardto
each secti
on.Itiswor t
h noti
ng t
hatt hesepointsar ebyno means
exhausti
ve and are meantto ser
ve only as examples.The t
ableis
i
ntendedt oprovi
deyouwi thasimplef r
amework/formatuponwhichto
baseyourbusinessplan.

ASi
mpl
eFor
mat

• Thef ormatprovidesyouwi thaf rameworkforpresent

ingyourthoughts,
i
deasandst rategiesi nalogical,consi
stentandcoher entmanner.In
otherwor dst
hebusi nesspl
anf ormathel
psyout oclar
ifyyourownideas
andpr esentt
hem cl earl
ytoothers.

Tabl
e2.
1–Essent
ialCont
ent
sofaBusi
nessPl
an

Cont
ents UsefulPoi nts
• Execut i
veSummar y • Hi ghlightt heattracti
onsofyour
Thissecti
onisabr i
efovervi
ewof business.
thewholeBusinessPlan. • Show t hat your pl an is well
researched wi thf i
gures t
o back
upyourf orecast
s.
• Demonst rate your management
abil
ity.
• Show t hatyourpr oducthas a
 mar ket.
• Enterpri
seDescr ipti
on • Provide an over view of your
It i s i mportant t hat you businessi dea.
demonst rate a clear • Statewhyyouchoset ogoi nt o
understanding of t he business thispar ticul arbusi ness.
youwoul dl i
ketobei n. • Show anyper sonalski l
lsand/ or
You shoul d al
so expl ain your exper i
ence t hatwi l
lhel p you i n
business concept and t he yourbusi ness.
reasonswhyyout hi
nki twil
lbea • State why you bel i
eve t he
success. businesswi llbeasuccess.
• ProductorSer vi
ceDescr i
pti
on • Descr ibeyourr angeofpr oduct s
Thissectionhelpsyou t o t hink orser vices.
about your pr oduct or ser vice • Ment ionpl ansf ornew addi tions
whichr eflect
sonyourabi l
ityt o toyourr ange.
understand and cat er f
or your • Speakabouti nnovat ivei deas.
cli
ents’expectat
ions. • What val ue woul d t he cl i
ent s
placeonyourpr oduct s?
• Whatwi llyourcl ientsexpectf rom
yourpr oduct ?
• Exampl e: Qual it
y, Desi gn,
Reliability, Innovat i
on, Reasonabl e
Price,Cust omerCar e.
• Indust r
yAnal ysis • Howbi gi syoursect or ?
This sect i
on hel ps you t o • How many compani es oper at e
under stand the i
ndustri
al thissect or ?
environment you i ntend to be • Whatar et hegener alt rends?
workingi nandt hroughi tyoucan • Howi syouri ndust rychangi ng?
i
dent i
f yi mportantchanges t hat • How wi llt hese changes af f ect
arel ikelytot ake pl ace in your you?
mar ket. • Are you awar e of l egisl
ation
and/ or r egul ations t hat coul d
affectyourbusi ness?
• Haveyout houghtaboutanyot her
changes– pol iti
cal,economi cor
technol ogi cal– t hatcoul daff ect
yourbusi ness?
• Compet i
ti
onAnal ysis • Whoar eyourcompet i
tors( l
ocal
Inordertocompet esuccessf ull
y andf or eign) ?
i
nanybusi nessyouneedt oknow • What ar e t heir st r engths and
yourcompet i
tor
s.Iti susefult o weaknesses?
studyhow andwhyt heyachi eve • Howcanyoubedi ff
er ent ?
success.Al so you need t o be • How can you become mor e
aware oft heirfai
lures to avoid compet itive?
commi t
ti
ngt hesameer r
ors.
• SWOTAnal ysis • I
nter
nal
 S=St r
engt hs Whatareyourstr
engths?
W =Weaknesses Whatareyourweaknesses?
O=Oppor tunit
ies • Ext
ernal
T=Thr eats Whataretheopportuni
ti
es?
Thissect ionenabl esyout ol ook Whatarethethr
eats?
closelyatt he internalstr
engt hs
and weaknesses of your
business,andt oi dentif
yexternal
threats and potential
oppor t
unities.
• Mar ketingSub- Plan • Ist hemar ketSt atic,Growi ngor
Itisnousehavi ngt hegreatest Decl i
ning?
producti nt hewor l
di fyoucannot • Whatmar ketsegment /s do you
sellit
. wisht ooper atei n?
This sect ion f ocuses on your • Whoar eyourt argetcl i
ents?
potentialcust omer s and all
ows • Do you have ni che or mass
yout oseewhet heryourproduct s mar ketpr oduct s?
cansat isf
yt heirneeds. • Whati syourpr icingpol i
cy?
• How do you compar e wi tht he
compet iti
on?
• How do you i nt end to sellyour
product ?
• Whe r
edoyoui ntendt osel lyour
product ?
• Operat i
onsSub- Plan • Howst r
ongar eyourmanagement
Thissect ionhelpsyout ol ookat systems?
youri nternaloperati
onsi ndetail • gener almanagement
toseei fyourbusi nesscanber un • mar ketingmanagement
effi
ciently and ef fect
ivel
y. It • f inancialmanagement
drawsat t
enti
ont oyourt eam and • How wi llyouensur eanef fici
ent
all
owsyout odevel opst r
ategi
es product ionsyst em?
for good and eff
ecti
ve • Have you t houghtaboutqual i
ty
management . certif
icat i
on?
• Howi mpor t
antar eheal th&saf ety
standar dsf oryourpr oduct?
• Doyoui ntendt oi nvestinpr oduct
development ?
• Wi l
lyoui nvesti nnew orsecond
handequi pment ?
• Ha sconsi der ationbeengi vent o
wher e t he equi pment was
manuf actured?
• HumanResour cesSub-Plan • Descr ibe your management
Peoplearethegr eat
estresour
ce structure.
of any business vent
ure.This • What t echni calski l
ls willyour
 sectionf ocusesyourat tentionon empl oyeeshave?
your wor kf or ce,t hei rt raining • Doyouneedt oinvesti
nt rai
ning?
needs as wel las t hei rmat erial • How wi ll you mot ivate your
needsi nt er msofheal th&saf ety, workf or
ce?
professi onal devel opment ,j ob • How wi ll you moni tor t heir
satisf actionandr emuner ation. performance?
• THEBUDGET • How wi llyougoaboutset t
ingup
Thebudgetpr ovi dest hef i
nanci al thebudget ?
planni ngdet ailf orever yaspectof • How of tenwi llyoureview act ual
the busi ness, f or exampl e, performanceagai nstbudget ?
empl oyee cost s, r ent, I T • Howwi llyoucar r
youtt hetaskof
i
nvest ment s, machi ner y cost s, l
ooki ng intother easonsf ort he
salesval ue,di rectmat er i
alcost s, vari
ances and t aki
ng cor rective
shippi ngandf rei ghtchar ges,et c. acti
on?
The ul timat et ar gett hatshoul d • Onwhatbasi swi l
lyousett heROI
resul tf rom t he budget i st he thatyouwi shthebusinesst ogi ve
budget ednetpr ofit.Iti sakeyt ool you?
foroper at ingt hebusi ness, andby
facili
tat i
ng compar ison ofact ual
perfor mance ver sus budget ed
perfor mance, i t hi ghl ights t he
oper at i
ng var iances to
management .
The budget ed net pr of i
t,af t
er
taxat i
on,when expr essed as a
percent ageoft heneti nvest ment
i
nt hebusi ness,gi vest heRet urn
OnI nvest ment–ROI–t hesi ngl e
mosti mpor t
antpi eceoff i
nanci al
dataandt her easonf orbei ngi n
busi nessi nt hef i
rstpl ace.
• Liqui dity • Howwi l
lyoukeepcontr
olofyour
Liquidi t
yi sf undament alt oever y cashfl
ow?
busi nessi nr el ationt obei ngabl e • Howwi l
lyoufi
nancethechanges
totradeandmeetobl i
gat ions. you mayneed to make i
n your
Managementmoni t
or st her isksi n busi
ness?
l
iquidi ty by t racki ng cash
movement s wi th a Cash Fl ow
Forecastensur ingadequat ecash
orf acilities t or aise money t o
carryoutt hebusi ness.
• Financi alSub- Pl an • Keepmanagementaccount
sand
Busi ness i s al l about t he produce them with r egul
ar
management of product s, fr
equency.
services and money.To enabl e • Willyouprovi
det
heresourceto
 managementt odot heirjob,t he develop t he cont ents of t he
toolt hey need i s management managementaccount stoprovide
i
nf ormat i
on. qualit
yi nformation,both within
Informat i
on relating t o busi ness the business and wi th ext
ernal
performance i st ransmi t
ted vi a i
nf ormati
ont hatwouldbestassist
managementaccount s.Thesear e and suppor tmanagementt o do
therefor e a ver y power fuland theirjobef
ficient
ly?
essent ial r eporting mechani sm
requi r
ing hi gh pr ior i
ty attention.
Successf ul businessmen
under st andhowmoneywor ksbut
needt ohavet hei nf or
mat i
ont o
suppor tthedeci sionmaki ng.
• Select ed Opt ions and Cr it
ical • Asar esul toft heanal ysiscar ried
Measur es out i n t he pr eceding sect ions
Followi ng a car efulanal ysis of make a l i
st of t he cr itical
yourbusi nessyoushoul dnowbe measur esyouneedt ocar r
yout .
i
n a posi t
ion t o make a l istof Exampl e:
l
ogi calopt ionsopent oyou. • Look i nto energy savi ngs
Once t he opt i
ons have been effi
ci enciesonmachi ner y.
i
dent i
fied,you shoul d be i na • Appl yf orISOcer tif
ication.
posi ti
ont ol i
stanumberofcr it
ical • I nvest i n t raini
ng f or
measur es t hat need t o be management .
i
mpl ement ed i n l ine wi th t he • I nvest i n t raini
ng f or
opt i
onsyouhavesel ected. empl oyees.
• Empl oynewst aff.
• Car r
youtmar ketresear ch.
• I nvest i n I nformat ion
Technol ogySyst ems.
• Seeknewpr emises.
• Seekf oreignpar t
ner s.
• Look f or new mar ket
segment s.
• Ot her s.
• MilestoneSchedul
e • Once you have i dent i
fi
ed t he
Thisi sal i
stofallt he cri
ti
cal crit
icalmeasur es,youshoul dpl an
measur esthatarement ioned in theirimpl ement ati
on.
the Busi ness Pl an. When • List al lt he i mportant cr itical
i
mpl emented,themeasuresi nthe measur es.
mil
est oneschedul
ewi l
lhelpyour • List the t ime f rames f or t he
enterpri
sebecomemor eeffici
ent. i
mpl ement at i
on of each cr itical
measur e.
• Es t
imat e the cost of
i
mpl ement at i
on of each cr itical
measur e.
Keepi
ngi
tSi
mpl
e

• Thebusi
nesspl
anf
ormati
ssi
mpl
eandeasyt
ofol
low.

• I
tisdesi
gnedasagui
det
ohel
pyouunder
standyourbusi
nessbet
ter
.

• I
thelpsyoutoanalyseyourst
rengt
hsandweaknesses,andmakesyou
t
hinkaboutyourgoal
s.

• Ital
sohel
psyout
odevel
opt
her
ightst
rat
egi
esi
nor
dert
oachi
eveyour
goal
s.

Not
e:

• Busi
nessplanni
nginvol
vesat hi
nkingpr
ocess.I
tisnothow muchyou
wri
tebutwhatyouwri
tethatmatt
ers.

• Eachsect i
onoft hebusinessplanisdi rectl
yli
nkedt otheothersand
cannotbevi ewedi nisolat
ion.Thus,forexampl e,youcannotspeakof
market
ing strategies wi
thoutconsideri
ng t hei
ri mpl
icat
ions on your
humanr esources,operat
ionalandfi
nancialrequi
rements.

• Ever
ydecisionyout
akei
nonear
eaofyourbusi
nesshasadi
rectbear
ing
onallot
hers.

Usi
ngt
hePl
an:I
mpl
ement
ati
on

• Thebusinessplancreatest
hebasi
cfoundat
ionf
rom whi
chyoucanbui
ld
abusinessandsomet hingyoucancompareprogr
essanddevel
opment
to.Onimplementat
ion,askyour
sel
f:

• Ar
eyouachi
evi
ngwhatyousetoutt
oachi
eve?

• Hasi
mpl
ement
ati
onf
oll
owedt
hepl
anandi
fnot
,whynot
?

• Wer
et heri
skspr
oper
lypr
edi
ctedandhaveoppor
tuni
ti
esbeen
r
eal
ised?

• Havecost
sbeeni
nli
newi
thf
orecast
s?

Maki
ngi
tHappen

• Communi cat
et he plan wi
del
y.Make surethatyou have t
he widest
possi
bleunderstandi
ngandcommit
mentt oi
tsaimsanddeli
verypl
ans.
 • Organizethebusi
nessinwayst hatensur
ethebusi
nesspl
ani
satt
he
heartofoper
ati
onsthr
oughoutt
hebusiness.

• Clear
lydefi
nerolesandr
esponsi
bil
it
iesandcommuni
cat
ethem t
ost
aff
andotherkeypeople.

• Setpersonalobj
ect
ivesf
orever
yempl
oyeeandvol
unt
eer
,agr
eedwi
th
thatper
son.

• Developindi
vidualbudgetstosuppor tvar
iousaspect
sofimpl
ement
ing
theplanandassi gnresponsibi
li
tyformanagingthebudget
s-wit
hcl
ear
spendingli
mit
s-t oindi
vidualst
afforstaf
fteams.

• Di
str
ibut
ethebudget
sandoper
ati
onal
/del
iver
ypl
ans.

• Moni
torprogr
ess,per
for
mance and out
comes;cont
rolspendi
ng and
t
imet
ables.

• Rewar
dsuccessf
ulper
for
mance.

• Take corr
ect
ive act
ion as r
equi
red.Revi
se st
rat
egi
es and pl
ans i
f
necessar
y.

• Ensurepeopl
ewhoneedt oknow ar ekeptinfor
medandensur ethat
i
ssues,outcomes and otherinfor
mat i
on aboutimplement
ati
on are
avai
labl
ewhenthenextpl
anningexerci
secomesalong.

Whileyouar eimpl
ementi
ngthebusinessplan,don’tforgettokeepchecki
ng
progr
ess.Reviewdevel
opment
sagainsttheplan.Learnfrom event
s;adj
ustt
he
pl
an asr equir
ed wi
thi
ntheconstr
aintsoft hebusi ness( t
ime,money,and
people)
.
Chapt
er3

HUMANRESOURCESMANAGEMENT

QUESTI
ONS

• Def
inet
heter
m humanr
esour
cesmanagement
.
[
2]

• St
ateanyfourf
unct
ionsofhumanr
esour
cemanagement
.
[
4]

• Di
ff
erent
iat
e between per
sonnelmanagementand human r
esour
ces
management.[4]

• How useful i
s the human r
esour
ces depar
tment t
o a t
imber
manuf
act
uringf
irm. [
6]

• Just
if
yt he need f
or a human r
esour
ce depar
tment t
oat
imber
manufact
uri
ngfir
m. [6]

• Whatar
ethedi
ff
erencesbet
weenr
ecr
uit
mentandsel
ect
ion?
[
3]
• Defi
net hefol
lowi
ngt
erms:
a)Recruitment
[2]
b)Selecti
on
[2]

• Expl
ainanytwoi
nter
nalandt
woext
ernalsour
cesofr
ecr
uit
ment
.
[4]

• Di
ff
erent
iat
ebet
weeni
nter
nalandext
ernalr
ecr
uit
mentusi
ngexampl
es.
[
3]

• Expl
ainanythr
eef
act
orswhi
chaf
fectr
ecr
uit
ment
.
[6]

• Def
inet
heter
mjobanal
ysi
s.
[
2]

• Explai
nwhyj obanal
ysi
sisofgr
eati
mpor
tancewhenr
ecr
uit
inganew
[2]
accountant.

• Whywoul dafir
m pr
efert
ousei
nter
nalr
ecr
uit
mentwhenr
ecr
uit
ingan
[
2]
account
antthanext
ernal
.

• Howusef
uli
sext
ernalr
ecr
uit
mentt
oacementmanuf
act
uri
ngf
ir
m.
[
4]

• Assesstheuseful
nessofi
nter
nalr
ecr
uit
mentwhenr
ecr
uit
inganew
account
ant
. [ 4]

• Howusefular
eempl
oymentagenci
esi
nrecr
uit
ingempl
oyees.
[
4]

• Give t
wo reasons why mostoft
he or
gani
sat
ions ar
e now usi
ng
employment [
2]
agenci
esinrecr
uit
ment.

• Dr
awupajobanal
ysi
sforat
ypi
calsecr
etar
y.
[
6]

• Di
ff
erent
iat
ebet
weenj
obspeci
fi
cat
ionandj
obdescr
ipt
ion.
[
3]
• Eval
uatet
heusef
ulnessofj
obanal
ysi
stoaf
ir
mint
hemanuf
act
uri
ng
sect
or. [
6]

• Expl
ainanythr
eef
act
orst
hati
nfl
uencet
hesel
ect
ionpr
ocess.
[6]

• Expl
aint
hesel
ect
ionpr
ocessofanor
gani
sat
ionofyourchoi
ce.
[
25]

• Def
inet
heter
m shor
tl
ist
ingi
nsel
ect
ion.
[
2]

• Expl
ainanythr
eet
ypesoft
est
susedi
nsel
ect
ionofempl
oyees.
[6]

• Howusefular
eint
ervi
ewsi
nsel
ect
ingempl
oyeesf
oraj
ob.
[
5]

• Expl
ainanytwot
ypesofi
nter
views.
[4]

• Givereasonswhymedi
calexami
nat
ionsar
eimpor
tantwhenr
ecr
uit
ing
new [
4]
employees.

• Whatar
ethecont
ent
sofamedi
calexami
nat
ion?
[
4]

• How usefuli
sthe cont
ract of empl
oyment when r
ecr
uit
ing new
empl
oyees? [
6]

• Just
if
ytheneedf
ori
nduct
iont
rai
ningt
oamanuf
act
uri
ngf
ir
m.
[
4]

• Di
sti
ngui
shbet
weent
rai
ninganddevel
opment
.
[
2]

• Howusefuli
str
aini
ngt
oamanuf
act
uri
ngf
ir
m?
[
4]

• Expl
ainanytwomet
hodsoft
rai
ning.
[4]

• Gi
veanytwoon-
the-
jobandanyt
woof
f-
the-
jobt
rai
ningmet
hods.
[4]
• Def
inet
heter
mtr
aini
ng.
[
2]

• Whati
sat
rai
ningpr
ogr
am?
[
2]

• Eval
uat
etheusef
ulnessofon-
the-
jobt
rai
ningt
oamanuf
act
uri
ngf
ir
m.
[
4]

• Underwhatci
rcumst
ancesmi
ghtaf
ir
m adopton-
the-
jobandof
f-
the-
job
t
rai
ning? [4]

• Def
inet
heter
m per
for
manceappr
aisal
.
[
2]

• Howusefuli
sper
for
manceappr
aisalt
oaf
ir
mint
heser
vicei
ndust
ry?
[
6]

• Di
sti
ngui
sh bet
ween per
for
mance appr
aisal and per
for
mance
management
. [
2]

• Whatar
ethepr
obl
emsassoci
atedwi
thper
for
manceappr
aisal
?
[
3]

• Def
inet
heter
mjobeval
uat
ion.
[
2]

• I
sjobeval
uat
ionnecessar
ytoamanuf
act
uri
ngf
ir
m?
[
6]

• Assess t
he usef
ulness ofhuman r
esour
ce/
manpowerpl
anni
ng t
oa
ser
vicesect
or.[
6]

• Defi
ne the ter
m col
lect
ive bar
gai
ning t
o an or
gani
sat
ion i
n t
he
manufact
uri
ng [
6]
sect
or.

• Assesstheusefulnessofcol
lect
ivebar
gai
ningt
oanor
gani
sat
ioni
nthe
[6]
manufactur
ingsector.

• Just
if
ytheneedf
orcol
lect
ivebar
gai
ningt
oaf
ir
m.
[
4]

• Whati
sast
ri
ke?
 [
2]

• Stat
eanyt
hreeor
gani
zed and t
hreeunor
gani
zed f
ormsofi
ndust
ri
al
acti
on. [
6]

• Def
inet
heter
mlabourt
urnover
.
[
2]

• Expl
aint
hecausesandef
fect
sofl
abourt
urnover
.
[
5]

• How mi
ghtmanagementat
temptt
oreducet
hel
evelofl
abourt
urnover
?
[5]

• St
ateanythr
eecausesofst
ri
ke.
[
3]

• St
ateanyfourcost
sofst
ri
kes.
[
4]

• Def
inet
heter
mindust
ri
alr
elat
ions.
[
2]

• Whatar
ethei
ndi
cat
orsofpoori
ndust
ri
alr
elat
ions?
[
4]

• Howwouldyouat
temptt
oover
comepoori
ndust
ri
alr
elat
ions?
[4]

• Whateff
ectdoes wor
ker
sinvol
vementand par
ti
cipat
ion have t
o an
or
gani
sat
ion? [
6]

• Showhowandwhymanagementmi
ghtencour
agewor
ker
spar
ti
cipat
ion
i
nan [25]
organi
sat
ion.

• Whatroledoesthefoll
owi
ngpl
ayt
oanor
gani
sat
ion?
a)Healt
handsaf et
y
[4]
b)Tr
adeuni ons
[4]
c)Workers’
commi tt
ee
[4]

• Anewl
yappoi
ntedper
sonnelmanagerhasannouncedt
hatt
her
eispoor
 i
ndustri
alrel
ati
onsinanorgani
sat
ion.
a)Whatsympt omsmighthehaveobserved?
[
10]
b)Ifyouwer etheper
sonnelmanagerhowwoul
dyouat
temptt
oensur
e
good [
15]
i
ndustri
alrel
ati
ons?

• Evaluatethemet hodswhichcanbeusedbyanor
gani
sat
iont
oassess
the [
25]
eff
ectivenessofapersonnelmanager
.

• Howmi
ghtaf
ir
m gai
nfr
om empl
oyi
ngaper
sonnelmanager
?
[2]

• Expl
aint
hereasonswhyor
gani
zat
ionalchangei
sinevi
tabl
e.
[
4]

• St
ateanyfourcausesofchange.
[
4]

• Expl
ainanytwomet
hodsofchange.
[4]

• Whydowor
ker
sresi
stchange?
[
4]

• Whymayfearl
eadt
oresi
stancet
ochange?
[
3]

• Explai
n any t
hree st
rat
egi
es t
hata f
ir
m mi
ghtempl
oy t
o manage
resi
stancet
o [
6]
change.

• Howdowor
ker
sresi
stchange?
[
4]

• Evaluatethedi
ff
erentmet hodswhichcanbeusedbyanor
gani
sat
iont
o
[
25]
eff
ectivel
ymanager esi
stancetochange.

• Def
inet
heter
m conf
li
ct.
[
2]

• St
ateanyf
ourcausesofconf
li
cts.
 [
4]

• Whyi
sorgani
zat
ionalconf
li
cti
nevi
tabl
e?
[
4]

• Howusef
uli
sconf
li
ctt
oanor
gani
sat
ion?
[
6]

• Howmi
ghtaf
ir
m at
temptt
oresol
veconf
li
cts?
[6]

• Eval
uat
ethedi
ff
erentmet
hodst
hataf
ir
m mi
ghtuset
omanageconf
li
cts.
[
25]

• “
Organizat
ionalconf
li
cti
snotal
waysdet
ri
ment
al.
”Di
scuss.
[10]

• Whatmi
ghtbet
hepossi
blebenef
itofconf
li
cts?
[
5]

• Whatfactor
smaydet
ermi
net
hechoi
cebet
weenon-
the-
jobandof
f-
the-
j
ob [6]
t
rai
ning?

• Gi
ver
easonswhyconf
li
ctsar
einevi
tabl
einal
argeor
gani
sat
ion?
[6]

• Di
scusshowaf
ir
m mi
ghtr
esol
vet
hepaydi
sput
ewi
tht
hewor
ker
s.
[
10]

N.
B.:Show advant
ages and di
sadvant
ages ofnegot
iat
ion,conci
li
ati
on,
ar
bit
rat
ions.

• Cri
ti
call
y exami
ne t
he schemes manager
s mi
ghtuse t
o wi
den t
he
employees [
15]
par
tici
pati
onint
heworkpl
ace.

N.
B.:I
ncl
udeevaluati
onofschemesl
ikequal
it
yci
rcl
es,
MBOS,
team wor
king,
wor
kerscounci
lsetc.

• Eval
uatehow humanr
esour
cemanagementmi
ghtaf
fectsuccessofa
busi
ness. [
25]

• Di
scusswhymanager
sshoul
dwor
ryabouthi
ghl
abourt
urnover
.
[
12]
 • “Thet
rai
ningofworkersi
sanunnecessar
ybusi
nesscost
.”
a)Towhatextentdoyouagr
eewiththi
sstat
ement?
[
12]

HUMANRESOURCESMANAGEMENT

Human resources managementisthe st

rat
egic appr
oach t
ot he eff
ect
ive
managementofanor gani
zat
ion’
swor
ker
ssot hatt
heyhelpthebusinessgai
na
competi
ti
veadvantage.

I
tist
hemanagementofpeopl
eatwor
k.

Di
ff
erences bet
ween Human Resour
ces Management and Per
sonnel
Management

HumanResour
cesManagement Per
sonnelManagement
• Iti
samodernt
erm. • I ti
sat radi
ti
onalterm.
• Ma npoweristreatedasmachi
nes
• Manpoweri
str
eat
edasasset
s.
ortoolsofwork.
• Deci
sionmaki
ngi
sfast. • I ti
sslow.
• Basi
s pay on j
ob perf
ormance
• Basi
spayonj
obeval
uat
ion.
eval
uation.
• Indi
vidual contr
act
s exi
st wi
th • Negot
iat
ionsbasedoncol
lect
ive
eachempl oyer
. bar
gai
ningwi
thuni
onl
eader
.

Rol
es/
Funct
ionsofHumanResour
cesManagement

• Pl
anni
ngt
hewor
kfor
ceneedsoft
hebusi
ness.

• Recr
uit
ingandsel
ect
ingappr
opr
iat
est
affusi
ngavar
iet
yoft
echni
ques.

• Compensat
ion,
admi
nist
rat
ionandr
ewar
dmanagement
.

• Jobeval
uat
ion.

• Heal
thandsaf
ety.

• Pol
icyi
nit
iat
ionandf
ormat
ion.

• Appr
aisi
ng,
trai
ninganddevel
opi
ngst
affatever
yst
ageoft
hei
rcar
eer
s.

• Prepar
ingcont
ract
sofemploymentf
oral
lstaf
fanddeci
dingonwhet
her
theseshoul
dbepermanentort
empor
ary,
ful
lorpar
t-
ti
mewor ker
s.
 • I
nvol
vingallmanager
si ndevel
opmentoft hei
rst
aff
,emphasi
zingt
hat
t
hisi
snotjusthumanresour
cesresponsi
bil
it
y.

• I
mpr
ovi
ngst
affmor
aleandwel
far
e.

• Devel
opi
ngappr
opr
iat
epaysyst
emsf
ordi
ff
erentcat
egor
iesofst
aff
.

• Measur
ingandmoni
tor
ingst
affper
for
mance.

Recr
uit
mentandSel
ect
ion

Recr
uit
ment

• Oncet
hemanpowerr
equi
rement
sar
edet
ermi
ned,
recr
uit
mentbegi
ns.

• Recr
uitmentis a process of i
dent
if
ying t
he sour
ces of pot
ent
ial
employees and encour
agi
ng them to applyfor the j
obs inthe
or
ganisati
on.

• Itcanbedef
inedast
hepr
ocessofat
tr
act
ingpot
ent
ialempl
oyeest
othe
company.

• Recruit
mentprovi
desapoolofcandi
dat
esf
rom whi
chper
sonnelwi
th
requi
redski
ll
scanbesel
ect
ed.

Sour
cesofRecr
uit
ment

I
nter
nalSour
ces

• Internalrecr
uitmentconsistofr
ecruit
ingpersonnelal
readywor
kingi
nthe
enterprise.Manyorganisati
onsfil
ljobvacanciesthr
oughpromoti
onsand
transferofexisti
ngstaf
f.

Advant
agesofI
nter
nalRecr
uit
ment

• Keepsempl
oyeeshappyandhi
ghi
nmor
ale.

• Appl
icant
smayal
readybeknownt
othesel
ect
iont
eam.

• Appl
icant
swillal
readyknowtheor
gani
sat
ionandi
tsi
nter
nalmet
hods–
noneedfori
nductiont
rai
ning.

• Cul
tur
eoft
heor
gani
sat
ionwi
llbewel
lunder
stoodbyt
heappl
icant
s.
 • Of
tenqui
ckert
hanext
ernalr
ecr
uit
ment
.

• Li
kelyto becheapert
han usi
ng ext
ernaladver
ti
sing and r
ecr
uit
ment
agenci
es.

• Gi
vesi
nter
nalst
affacar
eerst
ruct
ureandachancet
opr
ogr
ess.

Di
sadvant
agesofI
nter
nalRecr
uit
ment

• Exi
sti
ngemployeesmaynotbef
ull
yqual
if
iedf
ort
henew j
ob.Requi
red
tal
entmi
ghtnotbeavai
l
abl
e.

• Int
ernalcandi
dat
esbecomeaccustomedtothecompany’
swor
kpat
ter
ns
andassuchmayl ackori
ginal
it
yandfr
eshoutl
ook.

• Thi
smethodnar
rowst
hechoi
ceanddeni
est
heout
sider
soppor
tuni
ti
es
topr
ovet
hei
rwork.

• Di
sput
esmayar
iseanddemot
ivat
ionassomear
echosenwhi
leot
her
s
ar
enot.

Ext
ernalSour
ces

• This can t
ake t
he for
m ofadver
ti
sing i
n newspaper
s and j
our
nal
s,
educati
onali
nst
it
uti
onsandet
c.

Advant
agesofExt
ernalSour
ces

• Exter
nalappl
icant
swi l
lbr
ingnewideasandpr
acti
cest
hebusi
ness.Thi
s
hel
pkeept heexisti
ngstafff
ocusedont hef
utur
erat
hert
hantheway
thi
ngshavealwaysbeendone.

• Shoul
d be a wi
de choi
ce ofpot
ent
ialappl
icant
s,notj
ustl
imi
ted t
o
i
nter
nalst
aff
.

• Avoidsresent
mentsometi
mesfel
tbyexi
sti
ngst
affi
foneort
hei
rfor
mer
col
leaguesispromot
edabovet
hem.

• St
andardsofappli
cant
scoul
dbehi
ghert
hani
fjustl
imi
tedt
oint
ernal
st
affappl
icant
s.

Di
sadvant
agesofExt
ernalSour
ces

• I
tcr
eat
eshear
t-
bur
ninganddemor
ali
zat
ionamongexi
sti
ngper
sonnel
.
 • I
tisexpensi
ve.Great
ert
imeandmoneyhavet
obespentonadver
ti
sing,
t
estsandint
ervi
ews.

• Senseofi
nsecur
it
y.

• Dangersofmaladj
ust
ment.Somecandi
dat
eschosenf
rom out
sidemay
fai
ltoadj
ustt
othenewenvir
onment
.

Fact
orswhi
chAf
fectRecr
uit
ment

• Jobanal
ysi
s.

• Descr
ipt
ion.

• Per
sonspeci
fi
cat
ion.

• Labourmar
ketanal
ysi
s.

• Empl
oymentl
aw(
equal
empl
oymentoppor
tuni
ti
es)
.

• Or
gani
zat
ionalgoal
s.

• Ur
gencyoft
hevacancy.

• Gover
nmentr
egi
str
ati
on.

Met
hodsofExt
ernalRecr
uit
ment

1.Wal
k-I
ns

• I
ndi
vidual
swi
ll
becomeappl
icant
sbywal
kingi
ntot
hecompany.

• I
tisf
ormalandl
essexpensi
ve.

Di
sadvant
age

• Theor
gani
sat
ionmi
ghtnotgett
her
equi
redpeopl
e.

2.Empl
oymentAgenci
es

• Theyactasmediatorsbet
weenjobseekersandtheorgani
sat
ion.The
organi
sat
ioni
sassuredt
oemployther
ightper
sonf
orthejob.

Di
sadvant
age
 • I
tisver
yexpensi
ve.

3.Ref
err
als

• These ar
e words ofmouth adver
ts.Employees ar
erewar
ded f
rom
ref
err
ingski
ll
edemployeest
oorgani
sat
ions.

• Theprobl
em i
sthati
tcr
eat
esnepot
ism wher
ebyempl
oyeesbr
ingf
ri
ends
andrel
ati
ves.

4.Pr
ofessi
onalAssoci
ati
ons

• Thesemayadverti
sethei
rvacanci
esi
nthei
rnewspaper
s,j
our
nal
sandat
annualgener
almeeti
ng.

Advant
age

• I
nfor
mat
ioni
ssendt
oski
ll
edempl
oyees.

5.Adver
ti
sement
s

• Theycanadver
ti
set
hroughnewspaper
s,i
nter
net
,et
c.

Advant
age

• I
tischeaperbecauset
headver
twi
llappeart
omany.

Di
sadvant
age

• Itmaybeexpensi
vebecauseresour
cesmaybewast
edi
fal
lappl
icant
s
donotmeett
herequi
rements.

6.Educat
ionI
nst
it
uti
ons(
School
s,Col
leges,
Uni
ver
sit
ies)

• Or
gani
sat
ionsmakeuseoft
heseeducat
ionali
nst
it
uti
ons.

Advant
age

• Theor
gani
sat
ionwi
llempl
oyyoungandener
get
icwor
ker
s.

Di
sadvant
age

• Thesepeopl
emayl
ackexper
ience

Sel
ect
ion
 • I
tisaprocessofmaki
ngachoiceori
dent
if
yingt
hoseempl
oyeeswho
meett
heexpect
edst
andar
doft
hejob.

• I
tis a process of car
eful
ly screeni
ng t
he candi
dates,who of
fer
t
hemsel
vesforappoi
ntmentsoast ochoosethemostsui
tabl
eper
son.

St
epst
akeni
ntheSel
ect
ionPr
ocess

1.Shor
tl
ist
ing/
Ini
ti
alScr
eeni
ng

• I
tinvol
vesfi
ndingift
hecandi
dat
ehasmi
nimum qual
if
icat
ionsf
rom t
he
j
obanditisdonetosavet
ime.

2.Appl
icat
ionFor
m

• I
tisf
il
ledi
ntheappl
icant
’shandwr
it
ingf
orpr
operi
dent
if
icat
ion.

3.Test
ing

• I
tisusedt
opr
ovi
deacl
earpi
ctur
eoft
heappl
icat
ion.

TypesofTest
s

• Apt
it
udeTest–Thi
smeasur
esyouraccur
acyandspeed.

• Achi
evementTest–I
tmeasur
est
heacqui
redski
ll
sorknowl
edge.

• Vocat
ionalTest
/Int
erestTest–Usedt
ofi
ndwhet
hert
heappl
icantl
ikes
t
hejob.

• Per
sonal
it
yTest–Measur
eshowi
ndi
vidual
sint
eractwi
thot
her
s.

• At
tai
nmentTest–I
tmeasur
esqual
if
icat
ionsofempl
oyees.

Fact
orst
hatAf
fectt
heSel
ect
ionPr
ocess

• Natureoft heorgani
sati
on– Wher
etheorgani
sati
onhasreachedan
advanced stageinter
msoftechnol
ogy,i
tmayr equi
rehi
ghlyskil
l
ed
employeesornot.

• Si
zeoftheorganization–Smal lor
gani
zationsuseaninfor
malpr
ocess
meani
ngeducati
on, exper
ienceandqual
i
ficati
onsarenoti
mport
ant
.

• Numberofcandi
dat
esf
oraspeci
fi
cjob–Al
argenumberofqual
if
ied
 per
sonnelmi
ghtr
equi
reasophi
sti
cat
edpr
ocess.

• Tr
adeuni
ons–Theycandi
ctat
esel
ect
ioncr
it
eri
on.

• Gover
nmentl
egi
slat
ion–I
trequi
resequalempl
oymentoppor
tuni
ti
es.

• Ref
erencechecks–Thesear
etel
ephonei
nqui
ri
esf
rom empl
oyer
s.

I
nter
views

• Duri
ng the i
ntervi
ews,the organi
sati
on wouldfi
nd mor
e aboutthe
appl
icant
’sbackgroundandt heworkerwi
llhavet
heoppor
tuni
tytoask
moreabouttheorganisat
ion.

• Thei nter
viewsaskonar
eassuchashomebackgr
ounds,f
ami
lyand
organisat
ion.

TypesofI
nter
views

1.Pl
annedI
nter
view

• Quest
ionsareprepar
edi
nadvanceandanar
eat
obef
ocusedonsuchas
workexper
ience.

2.St
ressI
nter
view

• I
tisusedt oassesst heatt
itudeoftheindi
vidual
.Thi
sfr
ust
rat
esthe
i
nter
vieweesbyputt
ingthem underpr
essur
e.Theaimist
oknowwhet
her
t
heinter
vieweecancontr
olhi
sbehaviororemoti
ons.

3.Exi
tInt
ervi
ew

• I
sdonewhent
heempl
oyeel
eavest
heor
gani
sat
ion.

4.PanelI
nter
view

• Ar
econduct
edbythr
eeormor
epeopl
eandhavet
headvant
ageofbei
ng
moreobj
ect
ive.

Li
mit
ati
onsofanI
nter
view

• Canbebi
ased.

• Manyabi
li
ti
escannotbemeasur
edbyani
nter
view.
 • I
tist
imeconsumi
ngandcost
lyt
otheor
gani
sat
ion.

I
mpor
tanceofMedi
calExami
nat
iont
oanOr
gani
sat
ion

• Tor
ejectt
hosewhosephysi
calqual
if
icat
ionsar
einsuf
fi
cientf
ort
hej
ob.

• Toobt
ainar
ecor
doft
hephysi
calcondi
ti
onoft
heappl
icantatt
het
imeof
empl
oyment
.

• Topr
eventempl
oymentoft
hosewi
thcont
agi
ousdi
seases.

• To place t
hose who ar
e employabl
e butwhose physi
calcondi
ti
on
requi
resanassi
gnmenttospeci
fi
cduti
es.

• Therefor
e,medicalexaminat
ionsshoul
dbeusedasaposit
iveandi
nthe
sel
ectionprocessandnotasadevi cet
oeli
minat
eot
hers,t
hosewhoare
physical
lyhandicappedmustbesupport
ed.

Cont
ent
soft
heMedi
calExami
nat
ions

• Medi
calhi
stor
y.

• Hei
ght
.

• Wei
ght
.

• Bl
oodpr
essur
e.

• Vi
sion(
eyesi
ght
).

ManpowerPl
anni
ng

• Iti
saprocessbywhichaf i
rm ensur
est hatithastheri
ghtnumberof
peopl
eandther
ightki
ndofpeopl
eandt herightpl
aceandti
me.

• Itcanbedefinedasapr ocessoffor
ecast
ingmanpowerneedsand
devel
opi
ngappropr
iat
epol
ici
esandpr
ogrammestomeettheneeds.

• Itcanbedef
inedasanappraisalofanor
gani
sat
ion’
sabi
lit
ytoper
pet
uate
i
tselfwit
hrespecttoi
tsmanagementasadet er
minat
ionofmeasures
necessar
ytoprovi
deessent
ialtal
ent.

Advant
agesofManpowerPl
anni
ng
 • Itantici
pates personnelneeds ofthe or
ganisati
on infut
ure so t
hat
advancepr eparati
onmaybemadef orprocur
ementanddevel opmentof
therequir
edper sonnel
.Itavoi
dshurr
iedandemer gencyst
aff
ing.

• I
tisanessenti
alcomponentofst
rat
egi
cplanni
ng.I
tseeksnotsi
mpl
yt o
meetshor
t-
ter
mr epl
acementneedsbuti
sbasedonlong-r
angepl
ansfor
t
heorgani
sati
on.

• I
tfocuses on the wor
king condi
ti
ons and r
elat
ionshi
ps i
n whi
ch
i
ndi
vidual
sfunct
ion.

• I
treveal
sthepot
ent
ialandshor
tcomi
ngsofexi
sti
ngst
aff
.

• Itprovidesadequatecontr
olmeasuresto ensurethatt
henecessary
personnel are avail
abl
e as and when r equir
ed. I
t ant
ici
pates
redundanciesandavoi
dsunnecessar
ydi
smissals.

• Helpprovi
dessuffi
cientst
aff
,thati
s,i
tavoi
dspot
ent
ialsur
plusand
shor
tagesofper
sonnel.

• I
tenables t
he organi
sat
ion t
o cope wi
th changes i
nthe mar
ket
,
t
echnol
ogy,
product
sandcompetit
ion.

• I
thel
psinmaki
ngthebestuseofmanpowerr
esour
cesandi
nimpr
ovi
ng
t
hequant
it
yandqual
it
yofmanpower.

• Itcompelsmanagementcont i
nuousl
ytol ookaheadandappraisethe
tasksoftheent
erpri
se.I
treveal
spotenti
altr
oubl
eshotsl
ikeshor
tagesof
personnel
,over
-st
aff
ingandunderuti
li
zati
onofski
ll
s.

Di
sadvant
agesofManpowerPl
anni
ng

• Mor
emoneywi
llbespenti
nthepr
ocess.

• Smallfi
rms mi
ghtf
ailt
o come up wi
th a human r
esour
ces panel
depar
tment
.

• Probl
em ofpr
edi
cti
ngext
ernalevent
se.
g.,how manyempl
oyeesar
e
requi
red.

• It
ssuccessdependsontheski
ll
soft
hehumanr
esour
cespanelt
ocome
upwit
ht her
ightpeopl
e.
Tr
aini
ng

• Iti
sanorgani
zedprocessfort
hei
ncr
easi
ngt
heknowl
edgeandski
ll
sof
peopl
edoi
ngaparti
cularj
ob.

• I
tisal
ear
ningpr
ocessi
nvol
vingt
heacqui
sit
ionofski
ll
sandat
tr
ibut
es.

Tr
aini
ngandEducat
ion

• Trai
ni ng is concer
ned withimpor t
ing speci
fi
c skil
lsf or part
icul
ar
purposes.Thepur poseoftrai
ningistobr i
ngaboutimprovementint he
performanceofwor k.I
tincl
udeslear
ningofsuchskil
lsasar er
equiredto
doaspeci ficjobi
nabet t
erway.Themaj orbur
denoftrai
ningfall
sont he
empl oyees.

• Ont heotherhand,educat
ionisbroaderinscopeandmor egenerali
n
purpose.I
tinvol
vesincr
easinggener
alknowledgeandunder
standi
ngof
tot
alenvir
onment.

• Formaleducati
oni sgiveni
naschoolorcoll
egewher
east
rai
ningi
s
vocat
ionalandgener
all
yimpar
tedatt
hewor
kpl
ace.

• Tr
aini
nghasmor eimmedi
ateut
il
it
ari
anpurposethaneducat
ion.The
majorbur
denofeducati
onf
all
sonthestat
e.However,t
hetwocantake
pl
acesimult
aneousl
y.

Tr
aini
ngandDevel
opment

• Trai
ningi mpli
eslearningthebasicskill
sandknowl
edger
equi
redf
ora
part
icularjob.Ont heot herhand,devel
opmenti
nvol
vest
hegrowt
hof
i
ndividual
si nal
lrespects.

• Intr
ainingnon-manageri
alempl
oyeesthef
ocusisonimparti
ngmanual
ski
ll
s,techni
calprocedur
esandrouti
nemethods,butmanagersr
equi
re
general
izedconcept
ualski
ll
s.

• Tr
aini
ngi
sjobcent
eredwher
easdevel
opmenti
scar
eerbound.

• Managementdevelopmentaimsati ncr
easi
ngt hecapacityforfur
ther
tasksofgreaterdi
ff
icul
ty.Theref
ore,thecontent
sandt echni
quesof
employeetrai
ningmaydiff
erfrom thoseofmanagementdevel opment.
Developmentis more akinto educat i
on t
han trai
ning.Itinvolves
devel
opingthewhol
epersonphysical
ly,ment
all
yandsociall
y.
 Di
ff
erencesbet
weenTr
aini
ngandDevel
opment

Tr
aini
ng Devel
opment
• I tist heacqui siti
onofknowl edge, • Devel opmenti s concer ned wi th
ski l
ls and compet ences as a maki ng t he empl oyee mor e
resultoft eaching. effi
cientandpr oduct i
veatwor k.
• Tr ai
ning i ncludes on- t
he-job • Devel opmentr eferst o a mor e
training,i
nduct i
onandsemi nars. personal i
zed, indi
vidual
exper i
ence, j
obr otati
on, coaching.
Training can al so be par t of
development .
• Foc usoni mmedi ateresul
ts. • Leads t o devel opment of
tomor row’sresults.
• Tr ai
ningi sgroupbased. • Devel opmenti sindivi
dualbased.
• Tr ai
ning f ocuses on shor t
-t
erm • Devel opment f ocuses on t he
goal s of t he company ( task empl oyeeasaper sonandi san
orient ed)
. on-goi ngprocesswhi chcont i
nues
wellbeyondt r
aining.
• Tr ai
ningpr ovidest heski
ll
s. • Devel opment maxi mizes t he
skil
ls.

Pur
posesofTr
aini
ng

• Tosuppor
tnewempl
oyees(
indi
vidualt
rai
ning)
.

• Toi
mpr
ovepr
oduct
ivi
ty.

• Toi
ncr
easemar
ket
ingef
fect
iveness.

• Tosuppor
thi
ghst
andar
dsofcust
omerser
viceandqual
it
y.

• Tof
aci
li
tat
eint
roduct
ionofnewt
echnol
ogysyst
emsandot
herchanges.

• Tosuppor
templ
oyeepr
ogr
essi
onandpr
omot
ion.

• Gi
vingdi
rect
ionst
oor
gani
sat
ionact
ivi
ti
es.

Ef
fect
iveTr
aini
nghast
hef
oll
owi
ngBenef
it
s

• Hi
ghqual
it
y.

• Bet
terpr
oduct
ivi
ty.

• Mot
ivat
iont
hroughgr
eat
erempower
ment
.
 • Lesssuper
visi
oni
srequi
red.

• Mor
efl
exi
blet
hroughbet
terski
ll
s.

• Easi
ert
oimpl
ementchangei
ntheor
gani
sat
ion.

• Bet
terr
ecr
uit
mentandempl
oyeer
etent
ion.

Met
hodsofTr
aini
ng

1.I
nduct
ionTr
aini
ng

• I
tist
heprocessofi
ntr
oducinganew empl
oyeet
otheor
gani
sat
ionand
t
heorgani
sat
iont
otheemployee.

• I
tinvol
vest
rai
ningofnewempl
oyees.

• Iti
si mport
antt
o devi
ce an i
nduct
ion pr
ogr
amme t
o ensur
ethat
empl
oyees:

• Ar
eint
egr
atedasqui
ckl
yaspossi
ble.

• Under
standt
hei
rresponsi
bil
it
y.

• Learn the r
elevant aspect
s of the mi
ssi
on, cul
tur
e, pol
ici
es,
procedur
esandmet hodsofworki
ng.

• Feelcomf
ort
abl
e,mot
ivat
edandpr
oduct
iveassoonaspossi
ble.

• Itavoi
dscostl
ymist
akesbynewempl
oyeesnotknowi
ngpr
ocedur
es
andtechni
quesoft
henewjob.

• Reducehi
gherl
abourt
urnover
.

Thef
oll
owi
ngar
easmaybeconcl
udedi
nthei
nduct
iont
rai
ning:

• Seei
ngt
hel
ayoutoft
hepr
emi
ses.

• Lear
ningt
heval
uesandai
msoft
hebusi
ness.

• Lear
ningaboutt
hei
nter
nalwor
kingandpol
ici
esoft
hebusi
ness.

• I
dent
if
ytheneedsoft
henewempl
oyees.

• Lear
ningaboutt
hedut
iesoft
hej
ob.
 • Meet
ingnewcol
leagues.

Condi
ti
onsf
orEf
fect
iveI
nduct
ionTr
aini
ng

• Youmustconsi
dert
heneedsoft
henewempl
oyees.

• Pr
ovi
deani
nduct
ionbookl
etf
orr
efer
encepur
poses.

• Refl
ectt
heorgani
sati
onr
olesandcul
tur
ethr
ought
hef
ir
m’spol
ici
esand
missi
onstat
ement.

• Enought
imemustbegi
venf
ort
hei
nduct
iont
rai
ning.

On-
The-
JobTr
aini
ng(
Int
ernalTr
aini
ng)

• Empl
oyeesr
ecei
vet
rai
ningwhi
lstr
emai
ningi
nthewor
kfor
ce.

• I
tal
lowsempl
oyeest
olear
nast
heywor
k.

• Themai
nmet
hodsof“
on-
the-
jobt
rai
ning”i
ncl
ude:

• Demonst
rat
ing/
Inst
ruct
ing– Showi
ngt
heempl
oyeehow t
odot
he
j
ob.

• Coaching–Amoreint
ensi
vemet hodoftrai
ningt
hati
nvolvesacl
ose
rel
ati
onshi
pbet
weenexper
iencedemployeesandthet
rai
nee.

• Proj
ect s–Empl
oyeesj
oininpr
ojectt
eamswhichgivethem exposur
e
tootherpart
softhebusinessandallow t
hem t
ot akepartinnew
acti
vit
ies.

Advant
agesofOn-
The-
JobTr
aini
ng

• I
tiscostef
fect
iveandeasyt
oor
gani
se.

• Tr
aini
ngal
ongsi
der
eal
col
leaguescanmot
ivat
ethet
rai
nee.

• I
tisanoppor
tuni
tyf
orwor
ker
stol
ear
nwhi
ledoi
ngt
hej
ob.

• Ai
dst
opr
oduct
ion.

• I
tisspeci
fi
ctoaj
obandnotgener
al.

Di
sadvant
agesofOn-
The-
JobTr
aini
ng
 • Qual
it
ydependsont
heabi
li
tyoft
het
rai
neeandt
het
imeavai
labl
e.

• Lear
ningenvi
ronmentmi
ghtnotbeconduci
ve.

• Pot
ent
ialdi
srupt
iont
opr
oduct
ion.

• Badhabi
tsmaybepassedon.

Of
f-The-
JobTr
aini
ng(
Ext
ernalTr
aini
ng)

• Thisoccur
swhenempl
oyeesar
etakenawayf
rom t
hei
rwor
kpl
acet
obe
tr
ained.

• Examples incl
ude di
stantlearni
ng,eveni
ng cl
asses,sel
f-
study,and
sponsoredsourcesi
nhighereducati
on.

Advant
agesofOf
f-The-
JobTr
aini
ng

• Awi
der
angeofski
ll
sandqual
if
icat
ionscanbeobt
ained.

• Canlearnfr
om out
siderspeci
ali
stsorexper
ts,wor
ker
scanbemor
e
conf
ident
.

Di
sadvant
agesofOf
f-The-
JobTr
aini
ng

• Mor
eexpensi
ve,
forexampl
e,t
ranspor
tandaccommodat
ion.

• Employeesmaynowhavenewski
ll
sandqual
if
icat
ionsandmayl
eavef
or
bet
terjobs.

• Lostt
imeofwor
kandpot
ent
ialout
put
.

• New employeesmayst
il
lneedsomei
nduct
iont
rai
ningwhi
chcanbea
costt
othefir
m.

Tr
aini
ngLi
nkst
oMot
ivat
ionofSt
aff

Assumi
ngt
rai
ningi
sef
fect
ive:

• Empl
oyeesf
eelmor
eloyalt
othebusi
ness.

• Showt
hatt
hebusi
nessi
staki
ngani
nter
esti
nit
swor
ker
s.

• Empl
oyeesbenef
itf
rom bet
terpr
omot
ionoppor
tuni
ti
es.
 • I
tisanoppor
tuni
tyt
odevel
opnewski
ll
sandknowl
edge.

Benef
it
sofTr
aini
ngt
otheEmpl
oyer

• I
mpr
ovesqual
it
y.

• I
mpr
ovesmot
ivat
ionofst
aff
.

• Bet
terheal
thandsaf
etyhel
pingt
hef
ir
mreduceacci
dent
sandr
aise
st
andar
ds.

• Mor
eef
fect
iveuseofst
affandl
esscost
s.

• Tr
aini
ng brings i
n new i deas and ski
ll
sthat i
mpr
ove ef
fi
ciency,
pr
oducti
vit
yandprofi
tabi
li
ty.

• Lesssuper
visi
onofwor
ker
s.

Cost
sofnotTr
aini
ng/
Indi
cat
orst
hatTr
aini
ngi
sneeded

• Hi
gherlevelofwast
age orr
ewor
k hence i
ncr
eased costand l
ower
pr
oduct
ivi
ty.

• Mor
eacci
dent
s,l
ackofi
ntegr
ati
onandcoor
dinat
ionofj
obs.

• Lackofmul
ti
-ski
ll
edandf
lexi
blewor
kfor
ce.

• Poorcust
omersat
isf
act
ion,
forexampl
e,mor
ecompl
aint
s.

• Def
ect
ivegoods.

• Lowmor
ale.

Measur
esUsedt
oAssessEf
fect
ivenessofTr
aini
ng

• Levelofmot
ivat
ion.

• Levelofpr
oduct
ivi
ty.

• Numberofcust
omercompl
ains.

• Qual
it
yofpr
oduct
s.

• Level
sofi
ndust
ri
aldi
sput
es.
 • Ski
ll
slevel
s.

• Fl
exi
bil
it
yofwor
kfor
ce.

JobAnal
ysi
s

• Itinvol
ves acqui
ri
ng desi
red knowl
edge about t
he j
ob wi
thi
n an
organi
sat
ion.

• I
tisaprocessofdeterminingandr epor
ti
ngperti
nenti
nfor
mati
onrel
ati
ng
t
ot henatureofthespeci fi
cjob.Jobanal ysi
stri
estodefi
nethejobs
wit
hint
hef i
rm andbehaviornecessarytoperf
ormthem.

• I
tal
sodef
inesaj
obdescr
ipt
ionandj
obspeci
fi
cat
ion.

JobDescr
ipt
ion

• I
tisabroadst
atementoft
hepur
pose,dut
iesandr
esponsi
bil
it
iesoft
he
j
obhol
der.

• Itshould coverthe aspect

s such as j
ob orpayabl
elit
tl
er esources
avai
lableetc.placeint hehier
archi
calstr
uct
ure,how t
hej obwi l
lbe
assessedandmeasur edetc.

Advant
agesofaJobDescr
ipt
ion

• I
tassi
stsi
nmanpowerpl
anni
ng.

• I
tal
sohel
psi
nper
for
manceappr
aisal
.

• I
tident
if
iest
heneedf
ort
rai
ning.

• I
thel
psi
nrecr
uit
mentandsel
ect
ion.

• Bot
hmanagementandempl oyeeshaveast
atementofwhati
sexpect
ed
ofasuccessf
ulappl
icant
.

• Empl
oyeeshavestrong caseforr
efusi
ng t
o do t
askst
hatwer
enot
i
ncl
udedint
hejobdescr
ipti
on.

• I
tcanalsobeusedinjobevaluat
iont
oest
abl
ishpayst
ruct
ureandhel
ps
i
nident
if
yingt
rai
ningneeds.

Di
sadvant
agesofaJobDescr
ipt
ion
 • Inarapi
dlychangi
ngenvir
onment
,ri
gidadher
encetoaj
obdescr
ipt
ion
coul
dsti
fl
einnovat
ionandt
hemuchneededchange.

• Iftheyarepoorl
ywr i
tt
enusi
ngvaguer
athert
hanspeci
fi
ctheymi
ght
provi
deli
tt
legui
dancetowor
kers.

• Somet
imesj
obdescr
ipt
ionsar
enotupdat
edast
hedut
ieschange.

Per
sonSpeci
fi
cat
ion

• Thisi
nvol
vesspecif
ying i
nfor
mati
on abouttheneedssuch asski
ll
s,
knowl
edgeandabi
li
tyrequi
redoft
hepersontotaket
hej
ob.

• It cover
s t he knowledge, experi
ence, physi
cal char
act
eri
sti
cs,
qual
if
icat
ionsandageofthecandi
date.

• Itisli
keaper son’
sprofi
leanditwi
llhel
pinthesel ect
ionprocessby
eli
minati
ngappli
cantswhodonotmat
chupt henecessaryrequi
rement
s.

Cont
ractofEmpl
oyment

• I
tisalegaldocumentt
hatset
soutt
het
ermsandcondi
ti
onsgover
ninga
worker
’sj
ob.

• I
tisal
egal
lybi
ndi
ngdocument
.

• Thecont
ractdet
ail
s:

• Theempl
oyee’
sresponsi
bil
it
y.

• Wor
kinghour
s.

• Rat
eofpayandhol
idayent
it
lement
s.

• Thenumberofdaysofnot
icet
hatmustbegi
venbyt
hewor
kerwhen
hewant
stoleave.

• Thecontr
actprovidesresponsi
bil
it
yonbotht
he:empl
oyer–t
opr
ovide
thecondi
ti
onsofempl oymentlaiddownandt
heemployee–t
oworkto
thest
andardsspecif
iedinthecontr
act
.

Advant
agesofaCont
ractofEmpl
oyment

• I
tcr
eat
esawor
kabl
erel
ati
onshi
pbet
weent
heempl
oyerandempl
oyee.
 • Itshowsthedet
ail
soft
hej
obsuchaswor
kingcondi
ti
ons,sal
aryand
all
owances.

• I
tcr
eat
esabondbet
weent
heempl
oyerandempl
oyee.

• I
tshows t
he responsi
bil
it
ies oft
he empl
oyees and empl
oyer
sthus
r
educi
ngt
helevelofconf
li
cts.

Di
sadvant
agesofaCont
ractofEmpl
oyment

• I
tisdi
ff
icul
ttopr
epar
e.

• I
tist
imeconsumi
ng.

• I
tmaybecompl
exsucht
hatempl
oyeesmayf
ail
tounder
stand.

• Somecondi
ti
onsoft
hecont
ractmaynotber
espect
ed.

LabourTur
nover

• Itisthe rat
e atwhich employees ar
e movi
ng i
n and outoft
he
organi
sat
ionoveracer
tai
nper
iod.

• I
sthenumberofst
affl
eavi
ngabusi
nessoveraper
iodoft
ime.

• I
tismeasur
edbyt
hef
ormul
a:

Vol
unt
arySt
affTur
nover

• Itmeasur
est
henumberofempl
oyeeswhol
eavet
hef
ir
mfort
hei
rown
accor
d.

CausesofHi
ghLabourTur
nover

• Rel
ati
vel
ylowpaylevel
sleadt
ohi
gherl
abourt
urnoveraswor
ker
sleave
t
ogetbett
erpai
djobs.

• Rel
ati
vel
yfew tr
aining and pr
omot
ion oppor
tuni
ti
es wi
llencour
age
wor
kerstol
eavet
heircur
rentj
obs.
 • Poorwor
kingcondi
ti
onsorl
owj
obsat
isf
act
ion,
forexampl
e,bul
lyi
ngand
har
assment.

• Somebusinessesarer
elat
ivelypooratsel
ectingandr
ecr
uit
ingt
heright
candi
dat
esf orpost
s,wherewor kersarei
ll
-suit
edtot
hei
rjobsther
ei s
morechancethatt
heywil
lleavequickl
y.

• Unf
avor
abl
eleader
shi
pst
yle.

• Lackofj
obsecur
it
y,f
orexampl
e,nocont
ract
s.

• Poorr
elat
ionshi
ps(
inf
ormalgr
oups)
.

• Poormot
ivat
ion.

• Per
sonali
ssues–pr
egnancy,
il
lnessandmi
grat
ion.

Pr
obl
emsofHi
ghLabourTur
nover

• Recrui
ting new staffcan be cost
ly,f
orexampl
e,paperwor
ks and
advert
isingexpensesforr
ecr
uit
ingnewstaf
f.

• I
ttakesti
mefornewstaf
ftobecomef
ami
li
arwi
tht
hei
rrol
esandt
heway
i
nwhi cht
hebusi
nessoperat
es.

• Leavi
ngcost
s–payr
ollcost
sandper
sonaladmi
nist
rat
ionofl
eaver
s.

• Lossarisi
ngf
rom r
educedi
nputf
rom new st
art
ersunt
ilt
heyar
eful
ly
tr
ained.

Benef
it
sofHi
ghLabourTur
nover

• New st
affcanbr i
ngi
nfr
eshi
deasandexper
iencef
rom t
hei
rwor
kwi
th
ot
herbusinesses.

• Someworker
smaybei neff
ecti
veandneedstobeencour
agedt
oleave,
get
ti
ngr
idofinef
fect
ivestaf
fleadst
olabourt
urnover
.

• I
fbusi
nessisshrinki
nginsize,r
educi
ngt
hesi
zeoft
hewor
kfor
cewi
ll
r
esul
tinhi
ghlabourtur
nover
.

• Whereabusi
nesspayslowwagesorwherecondi t
ionsofwor
kar epoor
,
i
tmaybepr ofi
tabl
et ohaveaconstantturnoverofstaffr
atherthan
r
aisi
ngwagesorimprovi
ngcondi
ti
onsofwork.
Sol
uti
onst
oHi
ghLabourTur
nover

• Hi
gherpay.

• Bet
terwor
kingcondi
ti
ons.

• Bet
teri
nter
nalpr
omot
ionpr
ospect
stowor
ker
s.

• Bet
tersel
ect
ionpr
ocedur
es.

• Ef
fect
ivepr
ocedur
esagai
nstbul
lyi
ngandhar
assment
.

• Of
ferbonuses.

• Pr
ofi
tshar
ing.

Wor
kingManagement

Moder
nwor
kfor
cei
sspl
iti
ntot
hreemai
ngr
oups:

• Cor
ewor
ker
s.

• Per
ipher
alwor
ker
s.

• Ext
ernal
wor
ker
s.

Cor
eWor
ker
s

• Thesearef
ullt
imeempl
oyeeswhoar
ewel
lpai
dbutmaywor
klonger
hours.

• Theyar eter
med corewor
kersbecausetheyar
eattheheartoft he
organi
sati
ondoi
ngmanyoftheimport
antj
obsonwhi
chthecont
inui
tyof
thebusi
nessdepends.

Per
ipher
alWor
ker
s

• These are part

-t
ime and other worker
s wi th f
lexi
ble wor
king
arr
angement
s.Theyar
epaidl
essthancor
ewor ker
s.

• Par
t-
ti
mewor
ker
sar
eempl
oyedt
o:

• Mat
chst
aff
ingl
evel
stodemand.

• Becauseofempl
oyeepr
efer
encef
orpar
t-
ti
mewor
k.
 • Tor
etai
nval
uedst
aff
.

• Tor
educepayandnon-
paycost
s.

• Becausesuchwor
ker
sar
eunl
ikel
ytobeuni
oni
zed.

• Becausesuchwor
ker
shavef
ewerst
atut
oryr
ight
s.

Advant
agesofPar
t-
TimeWor
ker
s

Tot
hef
ir
m:

• Canbeusedwhent
her
eishi
gherl
abourt
urnover
.

• Thef
ir
m canoper
atemor
ehour
sorcl
osel
ate.

• Part
-t
imewor kersar
eflexibl
esi
ncet
heyar
ehi
reddur
ingt
hepeakand
l
aidoffdur
ingslackper
iods.

• Befor
eoff
eri
ngtheworker
sful
l-
ti
met
heycanf
ir
stassesst
hem whi
le
theyar
est
il
lpar
t-
ti
me.

Tot
heowner
:

• Abletohirepeopl
ewhoar ewill
ingt
orecei
vel
ow wages,f
orexampl
e,
schoolchi
ldr
enduri
nghol
idays.

• Somewor ker
swi
thl
owwagesel
sewher
ecanbecal
ledf
ort
hej
obdur
ing
theper
iod.

• Somewor
ker
swi
thnoqual
if
icat
ionscanbecal
led.

Di
sadvant
agesofPar
t-
TimeWor
ker
s

Tot
hef
ir
m:

• Mightmakemor
emi
stakessi
ncesomeoft
hem mi
ghtl
ackski
ll
sand
exper
ience.

• Mor
esuper
visi
onwi
llber
equi
redsi
ncet
her
ewi
llbemor
eempl
oyees.

• Mightbediff
iculttoest
ablishgoodt
eamwor
kbet
weenpar
t-
ti
mewor
ker
s
andexist
ingfull
-ti
mewor kers.
Tot
hewor
ker

• Theygetl
owpayt
hanf
ull
-t
imeempl
oyeessi
ncesomeoft
hem mi
ghtl
ack
ski
ll
s.

• Since they do nothave uni

ons t
or epresentt
hem,t hey ar
e usual
ly
exploi
tedandcanbef i
redanyti
mewithoutagoodreason.

Tempor
aryWor
ker
s

• Theyar
ehi
redt
omeetbusi
nessdemand.

• Whyt
heyar
ehi
red:

• Topr
ovi
deshor
t-
ter
m cover
.

• Tomat
chst
afft
odemand.

• Becausesomewor
ker
spr
efert
empor
arywor
k.

• Topr
ovi
decoveri
nti
mesofchangi
ngl
evel
s.

Ext
ernalWor
ker
s

• Theydonotwor
kdi
rect
lyf
oracompany.

• Theyenjoygoodr
atesofr
emuner
ati
onbutt
hei
rcont
ract
sar
eonl
yfora
l
imit
edlengt
hofti
me.

Subcont
ract
ingorOut
sour
cing

• I
sthet
ransf
erofi
nter
nalact
ivi
ti
est
oat
hir
dpar
ty(
ext
ernalwor
ker
).

• Exampl
esincl
udehumanresourceacti
vit
ies,f
orexampl
e,t
rai
ning,
payr
oll
management,
inf
ormat
ionsyst
ems, secur
ity,
groundmai
ntenance.

• Theai
msar
eto:

• Useexper
ti
senotavai
labl
eint
heor
gani
sat
ion.

• To concent
rat
e on act
ivi
ti
es thatare seen as cent
ralt
othe
achi
evementofor
gani
zat
ionalobj
ect
ives.
JobEval
uat
ion

• I
tisasystemat
icwayofdet
ermini
ngt
heval
ue/
wor
thofaj
obi
nrel
ati
on
t
ootherj
obsintheor
gani
sat
ion.

• I
ttri
estomakeasyst
emat i
ccompari
sonbetweenjobst oassessthei
r
r
elat
ivewor
thf
ort
hepurposeofest
abl
ishi
ngarat
ionalpayst
ructur
e.

• I
tfocusesont
hej
obandnott
hepasthol
der
.

Met
hods/
Techni
quesofJobEval
uat
ion

1.Ranki
ng

• Jobsarer
angedfr
om hi
ghestt
olowesti
nor
deroft
hei
rval
ueormer
it
sto
theor
gani
sat
ion.

• Jobs can al
so be ar
ranged accor
ding t
othe r
elat
ive di
ff
icul
tyi
n
perf
ormingt
hem.

2.Poi
ntRat
ingSyst
em

• Jobsar
eexpressedi
nter
msofkeyf
act
ors,f
orexampl
e,speci
fi
cski
ll
s,
compet
enceetc.

• Poi
ntsar
eassignedt
oeachf
act
oraf
terpr
ior
it
izi
ngeachf
act
ori
nor
der
ofi
mport
ance.

• Thepoi
ntsar
esummedupt
odet
ermi
net
hewager
atef
ort
hej
ob.

• Jobswi
thsi
mil
arpoi
ntt
otal
sar
epl
acedi
nsi
mil
argr
ades.

Advant
agesofJobEval
uat
ion

• I
ttr
iest
oli
nkpaywi
tht
her
equi
rement
soft
hej
ob.

• Itoff
ersasystemati
cprocedur
efordetermini
ngtherel
ati
vewor t
hofjobs.
Jobsarerankedonthebasisofrat
ionalcri
ter
iasuchasskil
ls,
exper
ience,
responsi
bil
it
ies,
hazardset
c.andarepricedaccordi
ngl
y.

• Anequit
ablewagestruct
ureisanaturalout
comeofjobevaluat
ion.An
unbi
asedjobeval
uat
iontendstoel
iminatesal
aryi
nequal
it
iesbyplaci
ng
 j
obshavi
ngsi
mil
arr
equi
rement
sint
hesamesal
aryr
ange.

• Empl
oyeesaswel lasunionspar t
ici
pateasmember sofjobevaluat
ion
commit
tees,whi
l
edet er
mi ni
ngrategradesfordi
ff
erentj
obs.Thishelps
i
nsolvi
ngwagerelat
edgrievancesquickl
y.

• Whenconduct
edpr
oper
lyi
thel
psi
ntheeval
uat
ionofnewj
obs.

• Paysystemsr esul
tsfrom st
udyofeachjobcont
entandr
esponsi
bil
it
y
andnotpersonalchar
acter
ist
icsoft
hehol
der
.

Di
sadvant
agesofJobEval
uat
ion

• Jobevaluat
ionconcl
usi
onsneedconst
antupdat
ingt
otakei
ntoaccount
changesinworkcont
ent
.

• I
fwor
ker
sar
enoti
nvol
vedt
henbadf
eel
ingscanr
esul
tfr
om t
hef
indi
ngs.

• The syst
em st
il
lrequi
res subj
ect
ive j
udgments when compar
ing t
he
degr
eeofdif
fi
cul
tandskil
lneededf
ordiff
erentj
obs.

• I
tdoesnotconsiderper
for
mancei
neachpastort
hesuppl
yofpeopl
e
wil
li
ngt
oundert
akeeachjob.

• I
tisver
yexpensi
veandt
imeconsumi
ng.

Per
for
manceAppr
aisal

• Itis a systemati
c eval
uat
ion ofemployees wi
threspectt
othei
r
per
for
manceoft hejobrel
atedbasedonthejobdescri
pti
onandt
hei
r
pot
enti
aldevelopment.

Char
act
eri
sti
csofaPer
for
manceAppr
aisalSyst
em

Per
for
manceeval
uat
ionmustbe:

• Rel
evant–Per f
ormanceappraisalmeasureswhateverisrelevantt
ot he
obj
ecti
vesofthejobasspeci
fiedinthejobdescr
ipti
on.Itmustmeasur e
onl
ythosebehavi
ororact
ionsthatarerel
atedt
otheobj ect
ivesofthejob.
 • Reli
able – Per formance evaluat
ion procedur
es shoul
d produce
consi
stentand repeat
ableresul
ts.Ifthesamebehavioriseval
uated
dif
fer
entl
yatdi
fferentt
imes,
itshouldprovi
dethesamer
esult
.

• Freefrom cont
aminati
on– Evaluat
ionmustmeasureeachemployee’s
perf
ormancewithoutbei
nginfl
uencedbyfact
orsbeyondt
heempl oyees
contr
olsuchaslackofmater
ial
s,poort
ool
sandeconomicfact
ors.

UsesofPer
for
manceAppr
aisal
/Advant
agesofPer
for
manceAppr
aisal

• Managementdevel
opmentprovidesaframeworkforfut
ureemployee
developmentby i
dent
if
ying and pr
epari
ng i
ndi
vidualfor i
ncr
eased
responsi
bil
it
y.

• Perf
ormancemeasurementsest
abl
isht
herelat
iveval
ueofani
ndi
vidual
contr
ibut
ion t
o t he company and hel
p evaluate t
he i
ndi
vidual
accompli
shments.

• Per
for
mance i mpr
ovement
s encour ages cont i
nued successful
per
for
manceandtomakeemployeesmoreef
fect
iveandproduct
ive.

• Per
formance apprai
sal hel
ps determi
ne appr opr
iat
e pays for
per
formanceandequi
tabl
esal
aryandbonusesi
ncenti
vebasedonmeri
t
andresul
ts.

• I
dent
if
icat
ionofpot
ent
ialcandi
dat
esf
orpr
omot
ions.

• Feedbackoutl
ines,whati
s expect
ed f
rom empl
oyees agai
nstact
ual
perf
ormance.

Pr
obl
emsofPer
for
manceAppr
aisal

• Indi
vidualThr eat– Manypeopl eespecial
lypoorperformersandt hose
whogener al
lydi sl
ikewor kbeingevaluat
ed.Theeval uat
ionthreatens
thei
rsel f
-esteem.The i rony ofthe eval
uati
on process isthatpoor
perf
ormer swhoar emosti nneedofperfor
mancefeedbackt ohelpthem
i
mpr ovear emostt hreat
enedandt herefor
emor eresi
stanttoaccepting
theevaluati
onf eedback.

• Poses a Thr
eatt o Super
visor– Supervi
sors do notli
ke to explai
n
eval
uati
on tot he subordinat
es.They argue that eval
uati
ng t hei
r
subordi
nat
esplacesthem intheposi
ti
onofroleconfl
ictbyfor
cingthem
to actas judges,coaches and fri
ends att he same time.Many
 supervi
sor
s do nothave int
erpersonaland communicat
ion ski
ll
st o
conduct an ef
fect
ive and effi
cient eval
uat
ion of a subordi
nate’
s
perf
ormance.

• Measuri
ngPerfor
mance–Per f
ormancemaybedi f
ficul
ttomeasurei
n
j
obsthatdonotpr
oduceaphysi
calpr
oductori
nser
viceindust
ri
es.

• HaloEffect– Oneposit
iveornegat
ivechar
act
erist
icaboutaper
son
st
rongl
yinfl
uencesal
lot
herat
tr
ibut
esaboutt
heperson.

• Leniency/St
ri
ctness Ef
fect– The t
endency t
o gi
ve f
avour
abl
e or
unfavorabl
erat
ingstoal
l.

• Cent
ralTendencyEffect–Managersgiveempl
oyeesaver
agerat
ingst
o
avoi
dsti
ckingthei
rnecksoutbyi
denti
fyi
ngmargi
nalper
for
mers.

• SequencingEf
fect–Theeval uati
onofoneindivi
dual’
sperformancemay
beinf
luencedbytherelati
veperformanceoftheprecedi
ngi ndi
vidual
.An
i
ndivi
dualmightreceiveaf avourabl
eevaluati
onofhi s/
heraf terother
per
formersandviceversa.

• RecencyEff
ect–Ani ndi
vidual
’
sgoodworkforthewholeyearmaybe
i
gnoredasar esul
tofonenegat i
vei
nci
dentoccur
ri
ngjustpri
ort
othe
per
formancereview.

• Bias/Subject
ivit
yPercept
ion–Thati
sdependentont
hei
mpr
essi
onand
percepti
onoft heeval
uati
on.

Heal
thandSaf
ety

• I
tisconcernedwi
thpr
event
inghar
m ar
isi
ngf
rom i
nci
dent
als,hazar
dsi
n
t
heworkplace.

Howt
oEnsur
eHeal
thandSaf
etyPr
ogr
amme

• Tr
aini
ng,
educat
ionandpr
ovi
sionoff
aci
li
ti
es.

• Ensur
ethatt
her
ightwar
ningsi
gnsar
epr
ovi
dedandl
ookedaf
ter
.

• Pr
ovi
deheal
thsuper
visi
onasneeded.

• Checkthatt
heri
ghtworkequi
pmenti
spr
ovi
dedandi
spr
oper
lyusedand
regul
arl
ymaint
ained.
 • Pr
ovi
deadequat
efi
rstai
dfaci
li
ti
es.

• Makesurethatvent
il
ati
on,t
emper
atur
e,l
ight
ing,t
oil
et,washi
ngandr
est
ar
eprovi
ded.

• Maket
hewor
kpl
acesaf
e.

Benef
it
sofHeal
thandSaf
etyLegi
slat
ion

• Iti
mproveseff
ici
encyt
hust
hei
llheal
thcasescancausef
ail
ureand
def
ici
enci
es.

• I
treducescost
s,f
orexampl
e,medi
calori
njur
ycost
s.

• I
tenhancest
her
eput
ati
onandhencet
hef
ir
m canat
tr
actski
ll
edwor
ker
s.

• I
tincr
easest
hemor
alandi
tiset
hicalt
odoso.

• I
tboost
spr
oduct
ivi
tyoft
hewor
ker
s.

Pr
obl
emsofHeal
thandSaf
etyLegi
slat
ion

• Mor
ecost
swi
llbei
ncur
redandt
husr
educet
hepr
ofi
tsoft
hef
ir
m.

• Theshar
eholder
smaybewor
ri
edi
fmoremoneyi susedi
nheal
thyand
saf
etypr
ogrammesi
ncet
hemover
educedi
vidends.

Empl
oymentLegi
slat
ion

• Iti
sabodyofl awsaimedatensur i
ngthatemployerstreatempl oyees
fai
rl
yandwi thregardtothei
rsaf
etyandwelfar
e.Themai nissuesinclude
unfai
rdismissal,incapabl
eofdoi ng t
hejob,redundancy,r ef
using to
acceptareasonablechangeinduti
esoraclashofpersonali
ti
es.

Conf
li
cts

• Itmay mean disagr

eement,host
il
it
y,cont
radi
cti
on ori
ncompat
ibi
li
ty
bet
weenindi
vidual
sandgroupsint
heorgani
sati
on.

• Conf
li
ctsoccurwhen two ormor
epar
ti
espur
suemut
ual
lyexcl
usi
ve
goal
s,val
uesorevent
s.

CausesorSour
cesofConf
li
cts
 • Di
ff
erentobj
ect
ives.

• Di
ff
erentst
atus.

• Di
ff
erentper
cept
ion.

• Shar
ingt
hescar
ce.

• Wor
ker
sint
erdependence.

• Or
gani
zat
ionalambi
gui
ti
es.

• Joi
ntdeci
sionmaki
ng.

Level
sofConf
li
cts

• Lat
entconf
li
cts.

• Per
cei
vedconf
li
cts.

• Fel
tconf
li
cts.

• Conf
li
ctmani
fest
ati
on.

• Conf
li
ctaf
ter
mat
h.

Benef
it
sofConf
li
cts

• Canl
eadt
obet
tersol
uti
ons.

• I
tincr
easesawar
enesst
hatapr
obl
em exi
st.

• Pr
omot
echanges.

• I
tenhancescommuni
cat
ion.

• I
tst
rengt
henst
her
elat
ionshi
pbet
weenempl
oyeesandmanagement
.

• I
tencour
agescr
eat
ivi
tyandi
nnovat
ion.

Pr
obl
emsofConf
li
cts

• I
tcandest
royanor
gani
sat
iont
hroughi
ndust
ri
alact
ion.

• I
fnotpr
oper
lymanaged,
itr
educespr
oduct
ivi
tyi
nanor
gani
sat
ion.
 • I
tcant
arni
sht
hei
mageoft
hef
ir
m.

• I
tcanaf
fector
gani
zat
ionalgr
owt
h.

• Conf
li
ctscansourr
elat
ionsbet
weenst
aff
.

• Canbet
imewast
ingi
funpr
oduct
ive.

• Conf
li
ctscansuppr
esssomei
deasbymi
nor
s.

WaysofResol
vingConf
li
cts

• Forci
ng–Ref er
st oasi
tuati
onwheretheper
soni naut
hori
tyusesforce
because he/she isthe boss.However,worker
s mightreduce thei
r
product
ivi
tyandt hi
sweakenstherel
ati
onshi
pbetweenthewor ker
sand
thei
rboss.

• Smootheni
ng–I samor ediplomati
cwayofsuppr essi
ngconfl
ictwhere
themanagertriesto persuadeonesi deint
o giving i
n.However,the
managermightbebiasedtowar dsonesi
deorfai
ltosuppressi
t.

• Avoi
dance–I
tist
hesi
tuat
ionwher
ethet
wopar
ti
esar
edi
sagr
eei
ng.

• Maj
ori
tyRul
e– Isasituat
ionwherebyagr
oupconf
li
cti
ssolvedbya
maj
ori
tyvot
e.Thiscan,however
,onlybefai
rift
hegroup member
s
r
egar
dthepr
ocedur
easfair
.

• Compr omise–I nvolvesconvi

nci
ngeachpartytot
heconfl
ictt
osacri
fi
ce
cert
ainobjecti
vesinor dert
ogainot
hers.However
,itmi
ghtbedif
fi
cul
tto
convinceotherpart
iest ogi
vei
n.

• Coll
aborat
ion – Itisthewil
li
ngnessofpart
iestoi dent
if
yt hemajor
causesoft heconfli
ctandt
rytosearchf
orsolut
ionsconsideredt
obe
mutualobj
ectives.

Tr
adeUni
ons

• I
tisagr oupofwor
kerswhojointoget
heri
nor dert
oprot
ecttheirown
i
nter
estandtobemorepower
fulwhennegot
iat
ingwit
hthei
remployers.

Ai
msofTr
adeUni
ons/
Rol
es/
Benef
it
s

• Toi
mpr
ovet
hepayofi
tsmember
.
 • Toi
mpr
ovewor
kingcondi
ti
ons.

• Tosuppor
tthet
radi
ngandpr
ofessi
onaldevel
opmentofi
tsmember
s.

• Toensurethatmember
s’i
nter
estsareconsi
deredbyempl
oyer
swhena
deci
sioni
smadewhichwil
laff
ecttheworker
s.

• Toactasachannelbet
weenwor
ker
sandempl
oyer
s.

• Forcol
lect
ivebar
gai
ningpur
poses.

Pr
obl
emsofTr
adeUni
ons

• I
tsef
fect
ivenessdependsont
hest
rengt
hoft
heor
gani
sat
ion.

• Mi
ghtst
imul
ategr
ievances.

• Canl
eadt
oindust
ri
alact
ions.

• Changebal
anceofpowerbet
weenwor
kerandmanager
s.

CHANGE(
ManagementofChange)

• Consci
ousat
tempt
stomodi
fycer
tai
noper
ati
on,
funct
ionsandpr
ocesses.

CausesofOr
gani
zat
ionalChange

Ext
ernalFor
ces

• Marketsi
tuat
ions,f
orexample,hi
ghl
ycompet
it
ivemar
ket
smi
ghtf
orce
i
ntr
oducti
onofcost-savi
ngequi
pment.

• Technology–I tmakesot
herasset
sobsol
eteandt
heneedforchangeis
st
imulated.
• Populati
onDynami cs–Changi
ngagedist
ri
buti
onmayresul
tinshor
tage
ofcertai
nskil
ledpeopl
e.
• Poli
ti
calandlegalsyst
em.

I
nter
nalFor
ces

• Def
ici
encyi
nexi
sti
ngsyst
em.

• Changesi
nmanager
ialper
sonnel
.
 • Needf
ori
mpr
ovi
ngqual
it
yandpr
oduct
ivi
ty.

• Scar
cit
yofcer
tai
nresour
ces.

React
iont
ochange

• Accept
ancei
ncl
ude–ent
husi
asm,
cooper
ati
on.

• I
ndi
ff
erence–apat
hy,
meni
alcont
ri
but
ion.

• Passive r
esist
ance – regressi
ve behavi
or,non-l
ear
ning behavi
or,
prot
ests,
int
enti
onaler
ror
s,sabotage.

• Act
iver
esi
stance–meni
alwor
k,sl
owi
ngdown,
per
sonalwi
thdr
awal
.

Whychangei
sresi
sted

Thebarri
ercanbeator gani zati
onalori ndi
viduall
evelandt heyinclude;
• St ructuralinerti
alt hust hechanget hreat
ensthel ogicoft hewayt hi
ngs
arecur r
entl
ydone
• Exi stingpowerst ruct uret huschangeobvi ousl
yt hreatenst hosewhose
poweri smostt hr eat ened.
• Resi stancefrom wor kgroupsaschangemayt hreatenthegr oups.
• Thef ail
ureofpr evi ousi niti
ati
ve.Thiswi l
lmakepeopl ehost i
letoother
proposedchanges.
• I ndividualresistancei scausedbyacombi nati
onofeconomi c,soci
aland
psychol ogicalfact or sasf oll
ows.

Economi
cFact
ors

• Fearofj
obl
osses.

• Fearofl
ossofear
nings.

• Reducedpr
omot
ionalpr
ospect
s.

• I
ncr
easedwor
kload.

Soci
alFact
ors

• Br
eakupofwor
kgr
oups.

• Changei
nrel
ati
onshi
ps.
 • Fearofi
ncr
easedsuper
visi
onandcont
rol
.

Psychol
ogi
calFact
ors

• I
nsecur
it
y.

• Fearofi
nabi
li
tyt
ocope.

• Lossofi
ncr
easedsuper
visi
on.

• Lossofpr
evi
ousf
reedom.

St
rat
egi
est
oover
comeResi
stancet
oChange

SourcesofResi
stance St
rat
egy
• Fearofunknown. • Of ferinformat i
onandsuppor t.
• Poorti
ming. • De l
aychange, waitforappropri
ate
ti
me.
• Contrasti
nginter
pretations. • I nformation–gr oupdiscussi
ons.
• I
nsecur i
ty. • Cl arif
yintentions,tr
aini
ng.
• Needf orchangenotr ecognized. • De monst rat
e t he pr obl
em or
oppor t
unity.
• Threattovestedinterest. • Enl ist key peopl e in planning
change.
• Dif
ferentpersonalambi ti
ons. • Ex traincentives.

Wor
ker
s’Par
ti
cipat
ion

• I
tmeanst
hei
ncl
usi
onofempl
oyeesi
ndeci
sionmaki
ngpr
ocess.

For
msofWor
ker
sPar
ti
cipat
ion

• Workers di
rect
ors – Empl
oyees’r
epr
esent
ati
ves on t
he boar
d of
di
rect
ors.

• Workscouncil– Empl
oyees’r
epr
esent
ati
vesonacounci
ltodi
scuss
i
ssuesr
elat
ingtoempl
oyees.

• Consul
tat
ivecommit
tee–Wor
ker
s’r
epr
esent
ati
vesconsul
tedoni
ssues
suchashealt
handsafet
y.

• Qual
it
yci
rcl
es

• Team br
ief
ing–di
scussi
onwhi
chaf
fect
sthebusi
ness.

• Physi
calenvi
ronment
.
 • Fi
nanci
ali
nvol
vement
.

• Wor
ker
s’commi
tt
ees

Advant
agesofWor
ker
sPar
ti
cipat
ion

• Ext
ensi
onofdemocr
acyi
ntot
hewor
kfor
ce.

• I
ncr
easedsat
isf
act
ionandper
sonaldevel
opment
.

• I
mpr
ovedmot
ivat
ionandi
ncr
easedcommi
tment
.

• I
mpr
ovedi
ndust
ri
alr
elat
ions.

• Ut
il
izest
heknowl
edgeandexper
ienceofwor
ker
s.

• Devel
opmentofconsensus.

• I
mpr
ovedf
lowofi
nfor
mat
ion.

Di
sadvant
agesofWor
ker
sPar
ti
cipat
ion

• Ti
me-
consumi
ng.

• Wor
ker
smi
ghtl
ackt
echni
calknowl
edge.

• Empl
oyeest
akeshor
t-
ter
m vi
ews.

• Conf
li
ctsofi
nter
est
smayar
ise.

• Deci
sionsshould bemadebyr i
skt aker
sand exper
tsto whom the
aut
horit
yisdel
egatedot
her
wisei
nter
fereswit
hmanager’
sri
ghtandduty
tomanage.

• I
frepr
esent
ati
vesar
evi
auni
onst
henwor
ker
swhoar
enotmember
swi
ll
l
oseout.

I
ndust
ri
alRel
ati
ons

• Refer
st otherel
ati
onshi
psthatgovernt
heemploymentstakehol
der
,for
example,t
radeuni
ons,gover
nment,empl
oyer
sandemployees.

I
ndi
cat
orsofPoorI
ndust
ri
alRel
ati
ons
 • Hi
ghl
abourt
urnover
.

• Labourt
urnoverist
her
ateatwhi
chwor
ker
sar
emovi
ngi
nandout
oftheor
ganizat
ion.

• Iti
scausedbypoormotivat
ionofwor
kfor
ce,
poorl
eader
shi
pst
yle,
poorcommunicat
ionet
c.

• Industr
ialact
ions,f
orexampl
e,t
hef
t,demonst
rat
ions,absent
eei
sm,
stri
kes.

• Reduct
ioni
npr
oduct
ivi
ty.

• Hi
ghr
ateofwast
age.

• Reduct
ioni
nsal
es.

• Lackofcooper
ati
on.

• Hi
ghl
evelofconf
li
cts.

• Hi
ghr
ateofabsent
eei
sm.

• Al
otofgr
ievances.

Howt
oOver
comePoorI
ndust
ri
alRel
ati
ons

• Wor
keri
nvol
vementandpar
ti
cipat
ioni
ndeci
sionmaki
ng.

• Col
lect
ivebar
gai
ning.

• Usi
ngor
gani
zat
ion’
spol
ici
es.

• Of
fer
ingmot
ivat
ionalbenef
it
s.

• Of
fer
ingi
ntent
ional
lowances.

I
ndust
ri
alAct
ion

• Iti
sat ypeofwarfar
eunderwhi
chpr
ivi
legedgr
oupsgai
natt
heexpense
oftheunpri
vil
eged.

Unor
gani
zedFor
msofI
ndust
ri
alAct
ion

• Absent
eei
sm.

• Thef
t.
 • Hi
ghl
abourt
urnover
.

• Del
iber
atedest
ruct
ionofpr
oper
ty.

• Lat
ecomi
ng.

• Wor
ktor
ule.

• Soci
all
oaf
ing.

Or
gani
zedFor
msofI
ndust
ri
alAct
ion

• St
ri
keact
ion.

• Si
tin.

• Pi
cket
ing.

• Over
ti
mebor
n.

St
ri
kes

• I
tisatempor
aryhol
dingofemployee’
sser
vicesf
rom t
heempl
oyerf
or
t
hepur
poseofget
ti
nggreat
ergai
ns.

CausesofSt
ri
kes

• Basi
cIssues–Sal
ari
es,
wages,
hour
sofwor
k,wor
kingcondi
ti
ons.

• Sol
idar
it
yIssues–Wor
ker
sri
ght
sanduni
onr
ecogni
ti
on.

• Fi
nanci
alI
ssues–Wor
kingar
rangement
sanddi
sci
pli
ne.

TypesofSt
ri
kes

• Economi
cSt
ri
kes–I
tisbasedondemandf
orbet
tersal
ari
esandwages.

• Sympat
hyStr
ikes–Itiswherebyot
heruni
onswhoar enotpar
toft
he
st
ri
kedeci
det
ostri
kesympat
hizi
ngwit
hthei
rcol
leagues.

CostofSt
ri
kes

• Lossofpr
ofi
ts

• Legalcost
s
 • Fr
ingebenef
it
sofst
ri
kingwor
ker
s

• Ext
rasecur
it
yguar
dsar
erequi
red

Post
-St
ri
keCost
s

• Hi
ri
ngandt
rai
ningcost
s

• Lossofcust
omer
sast
heyswi
tcht
oot
hersuppl
ier
s

• Over
ti
met
ocat
chupwi
thot
her
s

Col
lect
iveBar
gai
ning

• Iti
sanegot
iat
ionprocesst
hroughwhichempl
oyeesandemployer
s,by
anagr
eement,
creat
eandadjustt
heter
msandcondit
ionsofempl
oyment
.

• I
tcover
sissuessuchaswages,
wor
kinghour
sandcondi
ti
ons.

I
mpor
tanceofCol
lect
iveBar
gai
ning

• Cr
eat
esapeacef
ulr
elat
ionshi
pbet
weent
heempl
oyerandempl
oyee.

• Cr
eat
esmut
ualt
rustbet
weenpar
ti
esi
nlaborr
elat
ions.

• Cr
eat
esaf
avor
abl
ewor
kingenvi
ronment
.

• Br
ingsasenseofr
espectandhonor
.

Di
sadvant
agesofCol
lect
iveBar
gai
ning

• I
tnarr
owst herel
ati
onshi
pbet
weenempl
oyeesandempl
oyer
sleadi
ngt
o
l
ackofrespect
.

• Ti
me-
consumi
ng.

• Mayresul
tindest
ruct
ivebehavi
orsuchast
abl
epondi
ngmayaf
fectt
he
r
esul
ts.

• I
fnotproperl
ydonei tmayaff
ecttheef
fi
ciencyoft
heor
gani
sat
ion.Thi
s
mayresul
tinindust
ri
aldi
scontent
.

• I
trequi
reshi
ghl
yski
ll
ednegot
iat
ions.

I
ndust
ri
alDi
sput
es
 • Fai
lur
etonegot
iat
eleadst
odi
sput
es.

Met
hodsofResol
vingConf
li
cts

1.Conci
li
ati
on

• Theparti
estoadi sputeuseaconcil
iat
or,whomeetwit
hbot hpart
ies
separ
atel
yandtogetherinanat
tempttoresol
vet
hei
rdi
ff
erencesbutthe
thi
rdpart
ydoesnotimposeasettl
ement.

2.Medi
ati
on

• Athi
rdparty,t
hemediat
or,assi
ststheparti
estonegot
iat
easet
tl
ement
,
andusual
lyattheendacompromiseisreachedbyt
hetwopar
ti
es.

3.Ar
bit
rat
ion

• Athi
rdpart
yr evi
ewstheevi
denceinthecaseandimposesadeci
sion
t
hati
slegal
lybindi
ngonbot
hsidesandenf
orcedi
nthecourt
s.

4.Jobr
otat
ion

5.Separ
ati
onofconf
li
cti
ngpar
ti
es

6.Pr
ovi
sionofmor
eresour
ces

7.Negot
iat
ions

8.Useoff
orceandt
hreat
s

9.Conf
ront
ati
on

10.Avoi
dance

11.Communi
cat
ion
I
MPACTOFI
CTONHUMANRESOURCESMANAGEMENT

Informationcommuni cationt echnologyismor ebenef ici

altoanor gani
sation’
s
humanr esourcesdepartment .ThisisbecauseI CTwi l
lenablet heor ganisati
on
humanr esourcesdepar t
mentt oacqui r
eski l
ledper sonnelt hroughel ectroni
c
recruit
mentandt hi
swi l
lenhancet hecompet iti
venessoft hef i
rm.Thehuman
resources departmentwi llbe ablet o have an updat ed dat a base oft he
organisation’
s empl oyees t hr
ough t he human r esources management
i
nf ormationsystem.Mor eoverduet oICT thehumanr esour cesdepar tment
woul dbeabl etocont r
olt her at
eofabsent eei
sm,r uni tspayr ollusingthepay
netandbel i
nasystems.Ef fecti
vecommuni cati
onwi llalsobeenhancedt hrough
theICT

Chapt
er4

QUESTI
ONS:

COMMUNI
CATI
ON

• Def
inet
hef
oll
owi
ngt
ermsi
ncommuni
cat
ion:

• Communicat
ion.
[
2]

• Gr
apevi
ne.
[
2]

• Encodi
ng.
[
2]

• Decodi
ng.
 [
2]

• Bar
ri
er.
[2]

• Feedback.
[
2]

• Or
alcommuni
cat
ion.
[
2]

• I
nter
net
.
[2]

• Ver
ti
calcommuni
cat
ion.
[2]

• Hor
izont
alcommuni
cat
ion.
[2]

• Whatr
oledoescommuni
cat
ionpl
ayt
oaf
ir
mint
hemanuf
act
uri
ngsect
or?
[
6]

• I
ll
ust
rat
ethecommuni
cat
ionmodel
[
4]

• Evaluatetheuseful
nessofef
fect
ivecommuni
cat
ion t
o af
ir
m i
nthe
servi
ce [25]
i
ndust r
y.

• How doesalar
gemanufact
uri
ngf
ir
mli
keDel
taCor
por
ati
onat
temptt
o
ensur
e [
25]
eff
ect
ivecommuni
cat
ion?

• Expl
ainanysixbarri
erstoeff
ect
ivecommuni
cat
ionandwhatar
ethe
methods [25]
usedtomanagethesebar
ri
ers?

• Communicat
ioni
sgl
uet
hatbi
ndsanor
gani
zat
ion.Di
scuss.
[25]

• Stat
eanyt
hreebar
ri
erst
oef
fect
ivecommuni
cat
iont
hatar
einl
inewi
th
the:

• Recei
ver
.
[3]
 • Sender.
[
3]

• Channel
.
[3]

• Di
sti
ngui
shbet
ween:

• Ver
ti
calandhor
izont
alcommuni
cat
ion.
[5]

• Onewayandt
wowaycommuni
cat
ion.
[
5]

• Upwar
danddownwar
dcommuni
cat
ion.
[
5]

• Ver
balandnon-
ver
balcommuni
cat
ion.
[5]

• For
malandi
nfor
malcommuni
cat
ion.
[
5]

• Assesst
heusef
ulnessoft
hef
oll
owi
ng:

• Ver
balcommuni
cat
ion.
[6]

• Or
alcommuni
cat
ion.
[
6]

• Ver
ti
calcommuni
cat
ion.
[6]

• Hor
izont
alcommuni
cat
ion.
[6]

• Wr
it
tencommuni
cat
ion.
[
6]

• For
malcommuni
cat
ion.
[
6]

• I
nfor
malcommuni
cat
ion.
[
6]

• Gr
apevi
ne.
[
6]
• Expl
ainanythr
eehumanpr
obl
emsassoci
atedwi
tht
heuseofcomput
ers.
[6]

• St
ateanythr
eet
ypesofnet
wor
ksi
ncommuni
cat
ion.
[
3]

• a.Howusef
uli
stheal
lchannelnet
wor
kincommuni
cat
ion?
[4]

b.Howusef
uli
schai
nnet
wor
kincommuni
cat
ion?
[4]

• Usingexampl
esdiscusst
herelevanceofi
nfor
malgr
oupst
othesuccess
ofan [
12]or
ganizat
ion.

• Analyzehowmanager
smi
ghtassest
heef
fect
ivenessofcommuni
cat
ion
wit
hina[12]

Busi
ness.

• Evaluatet he impor
tance of i
nfor
malcommuni
cat
ion t
o busi
ness
eff
ectiveness. [
12]

• Eval
uat
ehow communi
cat
ionbet
weenmanagementandst
affmi
ghtbe
made [
10]

Mor
eef
fect
ivewi
thi
naschool
.

• Anal
yzetwopossi
bler
easonsf
orcommuni
cat
ionpr
obl
emsi
naf
act
ory.
[
4]

• Eval
uatet
wo waysi
nwhi
ch communi
cat
ion mi
ghtbei
mpr
ovedi
na
fact
ory. [10]

• ‘
Communicat
ion i
sthe l
if
e bl
ood ofan or
gani
zat
ion’
.Di
scuss t
his
st
atement
. [ 25]

• Def
inethet
erm di
agonalcommuni
cat
ion.
[2]

• Whyi
sitoft
endi
ff
icul
ttoachi
eveef
fect
ivecommuni
cat
ionwi
thi
nal
arge
[6]

Or
gani
sat
ion?

• Howusefuli
stheuseofi
nter
neti
ncommuni
cat
ion?
[
6]
 • Howusefuli
sel
ect
roni
ccommuni
cat
ionwi
thi
nal
argeor
gani
zat
ion?
[
6]

• Di
ff
erent
iat
ebet
weencommuni
cat
ionandef
fect
ivecommuni
cat
ion.
[
2]

• Wi
ththehel
pofi
ll
ust
rat
ions,
expl
aint
hecommuni
cat
ionmodel
.
[
6]

COMMUNI
CATI
ON

Communicati
on isthe shari
ng ofmessages,fact
s,opini
ons,ideas and
emot
ions bet
ween a recei
verand sender
.Itcan be or
al,vi
sual,pri
nted,
el
ect
roni
c,di
agrammati
candbol dl
y

Ef
fect
iveCommuni
cat
ion

• Communi cat
ioni
sef f
ect
ivei
fthemessageisaccur
atel
ysent
,pr
oper
ly
recei
vedandunderst
oodaswellaspr
operf
eedbacki
ssent.

I
mpor
tanceofEf
fect
iveCommuni
cat
ioni
naBusi
ness

• Thereisal ink between good communicati

on and mot i
vat
ion as
suggest
edbyHerzberg.Wit
htwowaycommuni cat
ion,wher
eempl oyees
are abl
eto part
ici
pate and gi
ve val
uabl
ei nfor
mat i
on t
hey wi l
lbe
 mot
ivat
ed.Asar
esul
t,pr
oduct
ivi
tywi
lli
ncr
ease.

• All
owscommuni cat
ionwi t
hotherst
akehol
der
s,f
orexampl
e,cr
edi
tor
s,
andsuppl
ier
s.Thiswil
lincr
easepr
ofi
ts.

• Eff
ecti
vecommuni cat
ionhel
pstosol
vesomeoft hebusinessprobl
ems,
forexampl
e,confli
ctsbet
weendepart
mentscanbesol vedbycar r
ying
outmeeti
ngs.Oncet heconfl
ict
sareresol
ved,t
hefir
m wi llbeableto
achi
eveover
allgoals.

• Withtwowaycommuni cati
on,quali
tycaneasil
yrespondtoanychange
i
nt hemarket
,forexample,i
fcustomerswantanew t ypeofshoes,t
he
fi
rm canbeinf
ormedquicklyvi
at hesuggest
ionboxesandhencesales
canbeincr
eased.

• Good communi cat

ion al
so hel
ps in pr
omoting coor
dinat
ion bet
ween
depar
tments.Wi t
houtcommuni cat
ion,onedepartmentmi ghtmakea
deci
sionwhichcanaffectot
herdepart
ments.

• Iti
mprovest hedeci
sionsmadebyt
hefi
rm,f
orexample,managementby
object
ives,
thesubordinat
esar
eabl
etogi
veval
uabl
einformat
ionthatt
he
managementr equir
es.

Cl
assi
fi
cat
ionofCommuni
cat
ion

a. Accor
dingt
odi
rect
ion

1. Ver t
icalcommuni
cat
ion– Iswhenpeopl
efrom di
ff
erentl
evel
sof
hier
archycommunicat
ewitheachot
her
.Itcanbedownwardorupward
communi cati
on.

Downward communi
cation (
from t
op t
o down, t
hati
s,f
rom
managementtoempl
oyees)

• I
tal
lowsdeci
sionsbymanagementt
obecar
ri
edoutbyempl
oyees.

• Ensur
est
hatact
ioni
sconsi
stentandcoor
dinat
ed.

• Reducescost
sbecausef
ewermi
stakeswoul
dbemade.

• Shouldleadt
ogr
eat
eref
fect
ivenessandpr
ofi
tabi
li
tyasar
esul
tof
theabove.

Upwar
dcommunicat
ion(
from bot
tom t
otop,
thati
s,f
rom empl
oyees
t
omanagement
)
 • Ithelps empl
oyer
sto under
stand t
he empl
oyees’vi
ews and
concerns.

• Ithelpsmanager
stokeepi
ntouchwi
thempl
oyees’at
ti
tudesand
valuesmore.

• I
tcanal
ertt
hemanager
sofpot
ent
ialpr
obl
ems.

• Itcanprovidemanager
swi t
ht heinf
ormat
iont
hattheyneedf or
decisi
onmaki ngandgivesfeedbackontheef
fect
sofpr evi
ous
decisi
ons.

• I
thelpsempl
oyeest
ofeelt
hatt
heyar
epar
ti
cipat
ingandt
hiscan
mot
ivatet
hem.

• It pr
ovi
des feedback on the ef
fecti
veness of downwar
d
communicat
ionandhowitcanbei
mproved.

2. Hor
izont
alcommuni
cat
ion

• Itoccursalongtheorgani
sati
onalchartbetweenpeopl
ewhohave
approxi
matelythesamest at
usbutdifferentar
easofresponsi
bil
it
y
eit
herthr
oughteam meeti
ngsorcommi t
tees.

• I
tcoor
dinat
esact
ivi
ti
es,
hel
pssol
vepr
obl
emsandof
feradvi
ce.

Commonpr
obl
ems

• Dif
fer
entdepar
tmentsmaynotunder
standthecultur
e,waysof
worki
ng,obj
ect
ives,pr
obl
emsort
echni
callanguageoftheot
her
depar
tment.

• Theout
lookandobj
ect
ivesofdi
ff
erentdepar
tment
scoul
dconf
li
ct.

b. Accor
dingt
omedi
a

1. Or
alcommuni
cat
ion

• Facetofacecommuni cat
ionwhichi
nvol
vesanor
almessagebei
ng
betweenpeopl
etal
kingtoeachot
her.

Advant
ages

• Al
lowsnewi
deast
obegener
ated.

• I
tisdi
rect
.

• Easyt
ounder
stand.
 • Canbequest
ionedqui
ckl
y.

• Canbevar
iedt
osui
teneedsoft
her
ecei
ver
.

• Thesendercanusebodyl
anguage.

• I
tcanbr
ingmot
ivat
ion.

Di
sadvant
ages

• Ther
e may be no wri
tten r
ecord ofwhatwas sai
d whi
ch i
s
i
nappropr
iat
eforcompl
icat
edortechni
calmat
ter
s.

• I
tcanbet
imeconsumi
ng.

• Bodylanguagemayaf
fectt
hemessageespeci
all
yift
hesender
appear
sbored.

• Peopl
e respondi
ng must be wi
ll
ing t
o par
ti
cipat
e and
communi
cate.

• Bodyl
anguagecr
eat
esabar
ri
er.

2. Wr
it
tencommuni
cat
ion

• Thi
scanbethroughnot
iceboar
ds,lett
ers,memos,r
eport
s,diagr
ams
andmi
nutesofameeti
ngwhichprovideapermanentr
ecord.

• I
tal
lowst
het
ransmi
ssi
onofcompl
icat
eddat
avi
adi
agr
ams.

Advant
ages

• Thesamemessagei
ssentt
omanyandi
sfast
er.

• I
tcandealwi
thal
argeaudi
enceandi
sfast
er.

• I
nfor
mat
ionexi
stsi
nrecor
dedf
orm.

• I
tcanactasabackupt
ocompl
icat
edver
balcommuni
cat
ion.

Di
sadvant
ages

• Noguar
ant
eeorr
ecei
ptofunder
standi
ng.

• I
treducespar
ti
cipat
ion.

• I
tcanr
esul
tinambi
gui
tyofwr
it
tenl
anguagewi
thoutf
eedback.

3. El
ect
roni
cmedi
a

• I
thast
hebenef
itofspeedandcanof
tenbecombi
nedwi
thawr
it
ten
 r
ecor
d.

• Inter
net
,emailuse,
int
ranet
s(int
ernalcomput
erl
inks)
,faxmessenger
,
videoconf
erenci
ngandmobi l
etel
ephones.

Dr
awbacks

• I
tmayr
equi
rest
afft
ober
e-t
rai
ned.

• Theyalsoreducehumancont
actandt
her
efor
ether
eisasenseof
i
solat
ion.

• I
nfor
mati
ont echnol
ogycanalsoleadt
oinfor
mat
ionover
loadasa
r
esul
tofspeedandlowtransmissi
oncost
s.

• Theequipmentneededt
ofaci
li
tat
ecommuni
cat
ioni
sal
sover
y
cost
ly.

• Ont
hespotcl
assi
fi
cat
ionsar
enotpossi
ble

4. Vi
sualcommuni
cat
ion

• Thi
scanbeusedt
oaccompanyor
al,
wri
tt
enorel
ect
roni
cmessages.

• Diagr
ams,char
ts,pi
ctur
esandpagesofcomput
eri
magescanbe
used.

• Vi
sualcommuni
cat
ioni
susual
lyusedi
ntr
aini
ngandi
nmar
ket
ing
pr
ograms.

Advant
ages

• Mor
eint
eract
ive.

• Demandsat
tent
ion.

• Easi
ert
oremember
.

Di
sadvant
ages

• Notal
wayscl
ear
.

• I
nter
pret
ati
onscanvar
y.

c. Accor
dingt
odegr
eeoff
ormal
it
y

1.For
malcommuni
cat
ion

• Thi
sisthecommunicat
ionthattakespl
aceint heorganisat
ionsetup
whi
ch i
s vi
ewed t
o be off
ici
al,pl
anned and organi
sed,forexample,
 wr
it
tencommuni
cat
ion,
meet
ings,
andmemos.

• Ar
e offi
cial
ly r
ecogni
zed by t
he or
gani
sat
ion and f
oll
ow t
he
or
gani
sat
ion’
sstr
uct
ure.

2. I
nfor
malcommuni
cat
ion(
Grapevi
ne)

• I
ttakespl
acei
ninf
ormalandi
nter
per
sonalcont
act
samongempl
oyees.

• Communicat
ionisnotpar
toft
heor
gani
sat
ionst
ruct
urebutexi
stsas
peopl
esoci
ali
zeatwor
k.

• Thegr
apevi
necanl
eadt
orumor
sandexagger
ati
ons.

• I
tisunof
fi
cial
,unpl
annedandout
sidet
heor
gani
sat
ion’
sfor
mal
channel
s.

1. Onewaycommuni
cat
ion

• I
tiscommuni cati
ont hatdoesnotall
ow feedbackf
rom t
her
ecei
ver
.
Thesubor
dinatesjustobeywithnofeedback.

• I
tinvol
vescommuni
cat
ionvi
anot
iceboar
dsandt
her
ear
eusual
lyno
meeti
ngs.

• Itis usual
lyused byaut
ocrati
cleader
s and t
hatmethod cannot
motivate worker
s si
nce it does not al
low consul
tat
ion with
subordinat
es.

• I
tischaract
eri
sedbyhighlevelsofconfl
ict
s,l
abourt
urnover
,lackof
moti
vat
ionandreduct
ioni
npr oduct
ivi
ty.

2. Twowaycommuni
cat
ion

• I
tis when thereisr oom forf
eedback f
rom the r
ecei
verofthe
message.I
tisassoci
atedwit
hamoredemocr at
icl
eader
shi
pstyl
e.

• Iti
salsoenabl
essubor
dinat
estocontri
but
eindeci
sionmaki
ng,f
or
example,
byuseofmeet
ings,
repor
tset
c.

However
,itismuchsl
owerthanonewaycommuni
cat
ionandi
tisduet
o
t
helongdiscussi
onsi
nvol
ved.

Downwar dcommuni cation Upwardcommuni cati

on
From highertolowerlevels From l
owert ohigherl
evels
Fl
owi sdownwar d Fl
owi supwar d
Directi
veinnature Nondirecti
ve
Pur posei
stogetpl ansimplement
ed Purposeistoprovidefeedback
Travelsquickly Travel
sslowl
y
Orders,instruct
ions,lect
ures,manual
s, Report
s, appeals, suggest
ions,
handbookset c.arethemainexamples gr ievances,prot
ests,sur
veys ar ethe
mainexamples

Formalcommuni cat
ion Informalcommuni cat i
on
Offici
alchannel Unof fi
cialchannel
Deliberatelyplannedandsystemati
c Unpl annedandspont aneous
Partoft heor ganizat
ionst
ruct
ure Cutsacr ossformalr elat
ionshi
ps
Orientedt owar dsgoalsandtasksoft
he Directed t owards goal s and need
enterprises satisfacti
onofindi viduals
Imper sonal Personalandsoci al
Stableandr i
gid Flexibleandunst able
Slowandst r
uct ur
e Fastandunst r
uct ured

Def
ini
ti
onofTer
ms

• Encoding – I
tis when the senderthe message t
ri
es t
o establ
ish
mutuali
tyofmeaning wit
ht he recei
verbychoosing t
he appr
opri
ate
channelormedi
um andsymbolforcommunicat
ion.

• Channel–Themeansbywhi
cht
hei
nfor
mat
ioni
str
ansmi
tt
ed.

• Decodi
ng–Itref
erstothesit
uat
ionwherebyt
herecei
vert
ri
est
odeduce
t
hemeaningbyconvert
ingsymbolsi
ntomeani
ng.

• Feedback–I tref
erstoasit
uat
ionwhentherecei
verrepor
tbackt
othe
senderorencoderaboutt
hemessagecommunicat
ed.

Communi
cat
ionmodel

Sender(
encoder
) messaget
obesentt
hrough r
ecei
ver
(
decoder)

appr
opr
iat
echannel

f
eedback
 Bar
ri
erst
oEf
fect
iveCommuni
cat
ion

1.Fai
lur
einanyst
ageoft
hecommuni
cat
ionpr
ocess

• The medium chosen mightbe inappr

opri
ate,forexampl
e,det
ail
ed
techni
caldi
agr
am bei
ngexplai
nedonacellphone.

• Ar
agemessagewoul
dresul
tinpoorunder
standi
ng.

• Excessi
veuseoft
echni
cal
languageorj
argon.

• Inf
ormati
onoverl
oad–I ft
herei
stoomuchinformati
onatt
hedecodi
ng,
suchinf
ormat
ionwil
ltakel
ongandmaybeinaccurat
e.

2. Poorat
ti
tudesofsenderandr
ecei
ver

• Acceptt
hemessageoractupon.

• Thesendermighthavel
ow opi
nionoft
her
ecei
verandt
husmakeno
ef
for
ttoensur
eclar
it
yoft
hemessage.

• Int
ermediari
esi nthechannelmaydeli
ber
atel
ysi
tont
hemessageor
changeitinordert
odemotivat
ether
ecei
ver
.

3. Physi
calr
easons

• Noi
syf
act
ori
esar
enotsui
tabl
eforcommuni
cat
ion.

• Geogr
aphi
caldi
stancecanl
imi
tcommuni
cat
ion.

Channelpr obl ems Receiverpr obl

ems
Destructi
on Noise
Dif
ferentper ception I
gnor ance
Lackofi nterest I
nformat ionfil
ter
ing
Inf
ormat ivef il
teri
ng Poorl i
steni
ngski l
ls
Withholdingi nformati
on Att
itude
Sourceeval uat i
on

Sol
uti
onst
oBar
ri
erst
oEf
fect
iveCommuni
cat
ion

• Ensur
ethemessagei
scl
ear
,pr
eci
seandadequat
elydet
ail
ed.
 • Keept
hecommuni
cat
ionpr
ocessasshor
taspossi
ble.

• Bui
ldf
eedbacki
nthecommuni
cat
ionchannel
/pr
ocess.

• Ensurethe channel
s of communi
cat
ion ar
e known by al
lint
he
organi
sat
ion.

• Usesi
mpl
elanguagef
oreasi
erunder
standi
ng.

• Est
abl
isht
rustbet
weensender
sandr
ecei
ver
s.

• Makesur
ethephysi
calenvir
onmenti
sappr
opr
iat
eformessagest
obe
hear
dorr
ecei
vedi
neitherway.

Resul
tsofCommuni
cat
ionFai
lur
e

• Poordeci
sionmaki
ng.

• Hi
ghl
evelofconf
li
cts.

• Poor
lydel
egat
edt
asks.

• Fai
lur
etoi
mpl
ementpl
ans.

• Hi
ghl
evel
sofmi
stakesander
ror
s.

• Wi
thdr
awalofcooper
ati
onwhi
chmayr
esul
tinst
ri
kes.

• Lowmor
ale.

• Poorqual
it
ywor
k.

• Lackofcont
rol
.

• Conf
li
cts.

Comput
ersi
nCommuni
cat
ion

I
nfor
mat
ionTechnol
ogy

• Itisacol l
ecti
vetermf orvar
ioust
echnologi
eswhichcoverscoll
ecti
on,
storage,processi
ng and communicat
ion ofinf
ormat
ion byelect
ronic
means.

Advant
agesofI
nfor
mat
ionTechnol
ogyCommuni
cat
ion

• I
tincr
easest
hevol
umeofi
nfor
mat
ion.

• I
tincr
easespr
oduct
ivi
ty.
 • I
tincr
easesspeedofi
nfor
mat
ionpr
ocessi
ng.

• I
tincr
easesaccur
acyofi
nfor
mat
ion.

Di
sadvant
agesofI
nfor
mat
ionTechnol
ogyCommuni
cat
ion

• Hi
ghcostofi
nst
all
ati
onandr
unni
ngt
heequi
pment
.

• I
tisver
yexpensi
vet
otr
ainst
aff
.

• I
tmayr
esul
tinr
esi
stancet
ochange.

• I
tmayr
esul
tinhi
ghl
evel
sofunempl
oyment
.

• Ther
eareanumberofpr
obl
emswhi
char
ecausedbybr
eakdownof
equi
pment
.

• Ther
eisapr
obl
em ofsecur
it
yconf
ident
ial
it
yanddat
ahandl
ing.

I
nter
net

• I
tisanet
wor
kofnet
wor
ks.

• I
tisani
nter
connect
ionofnet
wor
kst
hrought
heuseoft
heWor
ldWi
de
Web.

Advant
agesofI
nter
net

• I
tcanbeusedt
oadver
ti
seaf
ir
m’spr
oduct
s.

• I
tcanbeusedi
nthesel
li
ngofgoodsandser
vices.

• Inf
ormation gat
heri
ng i
s made qui
ckl
y and f
ast
ert
hrough onl
i
ne
searchenginessuchasGoogl
eandYahoo.

• I
tcanbeusedf
oref
fect
ivecommuni
cat
ionbyt
heuseofemai
ls.

• Of
fer
sapl
atf
ormf
orbusi
nesst
ransact
ing.

Di
sadvant
agesofi
nter
net

• I
tmayi
ncl
udei
ncompl
ete,
tri
vialandi
l
legali
nfor
mat
ion.

• I
tcanbesl
owt
obot
hconnectanduse.

• I
tcanpr
oducei
nfor
mat
ionover
load.

• Secur
it
yandt
rustar
enecessar
y.

• Wor
ker
scanwast
eval
uabl
eti
mesur
fi
ngt
hei
nter
net
.
Emai
l

Advant
agesofEmai
linCommuni
cat
ion

• Pr
ovi
descheapandef
fect
ivel
ongdi
stancecommuni
cat
ion.

• I
tof
fer
sunl
imi
tedpot
ent
ialf
orper
sonalnet
wor
king.

• I
thasawor
ldwi
desour
ceofi
nfor
mat
ion.

• I
tisdemocr
ati
candopent
oever
yone.

Di
sadvant
agesofEmai
linCommuni
cat
ion

• I
tincl
udesi
ncompl
ete,
tri
vialandi
ll
egal
inf
ormat
ion.

• I
tcanbeaf
fect
edbyi
nfor
mat
ionover
load.

• Empl
oyeescanwast
eval
uabl
eti
mesur
fi
ngt
henet
.

Tel
ephoneandFax

Advant
agesofTel
ephone/
Fax

• Del
iver
yisf
ast
ert
hanmai
l.

• Iti
spossi
blet
osendonemessaget
omanypeopl
ewi
thoneor
igi
nal
copy.

Di
sadvant
agesofTel
ephone/
Fax

• I
tisnotal
wayssecur
e.

• I
tcanbeusedi
nappr
opr
iat
ely.

HumanPr
obl
emsAssoci
atedwi
tht
heUseofComput
ersi
nCommuni
cat
ion

• Eyesi
ghtpr
obl
ems.

• Comput
eri
ll
it
eracy.

• Hacki
ng.

• Sl
eepi
ngpr
obl
ems.

• Comput
ervi
sionsyndr
ome.

• Suffer
ingfrom incr
easingevaporati
onoftears,bl
urr
edvisi
on,doubl
e
vi
sion,redeyes,
eyeirr
it
ati
on,headaches,
neckandbackpai
ns.

Fact
orsThatAf
fectChoi
ceofCommuni
cat
ionMedi
a
 • I
mpor
tanceoft
hemessaget
obecommuni
cat
ed.

• Advant
agest
obegai
nedt
othest
aff
.

• Cost
sinvol
ved.

• Speedofcommuni
cat
ionmedi
um.

• Quant
it
y/si
zeofdat
atobecommuni
cat
ed.

• Ur
gencyoft
hemessage.

Communi
cat
ionNet
wor
ks

• I
tisapat
ter
nofi
nter
-connect
edl
ines.

• Itisthesyst
em wher
ethemessagemayf
low i
nonedi
rect
ionori
n
sever
aldi
rect
ions.

1. Al
lChannelNet
wor
k/Fr
eeFl
ow

• I
trepr
esent
saf
reef
lowofcommuni
cat
ion.

• Ever
ymemberi
sal
lowedt
ocommuni
cat
efr
eel
ywi
thot
hermember
s

• I
tpr
ovi
deshi
ghestsat
isf
act
ion.

• I
tisanunst
ruct
uredandi
nfor
malcommuni
cat
ionnet
wor
k.

• Wit
hit
sparti
cipat
oryst
yleandmor
eopencommuni
cat
ion,
itpr
ovi
des
t
hebestsol
uti
onstocomplexpr
obl
ems.

Di
sadvant
ages

• I
tissl
ow.

• Itt
endstodi
sint
egrat
eundert
imepr
essur
etogett
her
esul
tswhen
operat
edinagroup.

2. TheCi
rcl
es

• Thisshowsthateachdepar
tmentcanonlycommuni
cat
ewit
htwo
depar
tment
s,forexampl
e,Acommunicat
eswithBorDandi
tisnot
possi
blewi
thC.

• Thist
ypeofcommuni cat
ioncanoccurbet
weent hemiddlemanager
s
fr
om di
ff
erentdepar
tmentsbutatt
hesamel eveloft
heorgani
sat
ion.

Di
sadvant
ages
 • Deci
sion making can be sl
ow orpoorbecause ofl
ack of
coor
dinat
ion.

3. TheChai
n

• I
swhenoneper
sonpassesi
nfor
mat
iont
oot
her
swhot
henpassi
ton.

• Thi
s approach tends t
o be the formalapproach adopt
ed by
hi
erar
chi
calorgani
sati
onssuchasci
vilser
vice.

• Themai nadvantageisthatthereisaleader
/coordi
nat
oratthetopof
the hi
erar
chy who can over see communicat
ion downwards and
upwardstodiff
erentareasofthebusiness.

• Onepr
obl
em maybet
hei
sol
ati
onf
eltbyt
hoseatt
hebot
tom oft
he
net
wor
k.

• Thei
rmot
ivat
ionmaybel
esst
hanot
her
sift
heyf
eelatt
hei
rper
ipher
y.

4. TheWheel

• Ai
stheheadof
fi
ce.

• B,
C,D,
Ear
emanager
sfr
om di
ff
erentdepar
tment
s.

• Ther
ei s a per
son,gr
oup ordepar
tmentt
hatoccupi
es a cent
ral
posi
ti
on.

• Thi
snet
wor
kispar
ti
cul
arl
ygoodatsol
vingpr
obl
ems.

5. TheY-
Net
wor
k

• I
tisacent
ral
izedf
orm ofcommuni
cat
ion.

• I
tcombi
nest
hewheelandt
hechai
ncommuni
cat
ion.

• Cpassesi
nfor
mat
iont
oA,
B,DandE.

• Wi
thoutCi
nfor
mat
ionwi
llnotf
low.

Gr
apevi
ne

• Iti s an infor
mal f or
m of communicati
on that i
gnor
es for
mal
communication and spreads r
umorand gossi
p atal
llevel
sin an
organi
zat
ion.

Di
sadvant
ages

• I
tcar
ri
esi
ncompl
etei
nfor
mat
ionwi
thi
ntheor
gani
zat
ion.
 • I
tcanbeabasel
essar
gumentwi
thi
nanor
gani
zat
ion.

• I
tcanbeasour
ceofst
ri
kes.

• Mayspr
eadgossi
pwhi
chi
sdanger
oust
otheor
gani
zat
ion.

Reasonsf
ornotI
gnor
ingGr
apevi
nei
nanOr
gani
zat
ion

• I
tisasour
ceofsoci
alr
elat
ionshi
psandmor
alboast
eratwor
k.

• Gi
vesvi
talf
eedbacki
ntheor
gani
zat
ion.

• Soci
alpr
obl
emscanbesol
vedt
hroughgr
apevi
ne.

• Itact
sasanimpor
tantsour
ceofcommuni
cat
ionespeci
all
yint
imes
ofchange.

I
MPACTOFI
CTONCOMMUNI
CATI
ON

• Memor yManagement–E- mailisapopul arf

orm ofcommunicat
ionfor
academicinst
it
uti
onsandbusi nesses.Eache-mai
lyouhaveinyoure-
mailboxtakesupacertai
namountofmemor yont hesyst
em’sserver
.
The amountof memor y avail
able on the ser
ver i
s managed by
 i
nfor
mat
iont
echnol
ogyper
sonnel
.

• Troubleshooting – School s and businesses usuall

y have an IT
departmentoratl eastoneI Tprofessi
onal.OnetaskanITdepart
mentis
responsibl
ef oristroubleshoot
ing.Whenevert her
eisapr obl
em wit
ha
technology-
based communi cat
ion tooltheIT depart
menti scal
led t
o
diagnoseandf i
xtheproblem.

• Guideli
nes – To preventprobl
ems,IT per
sonnelgive gui
del
ines f
or
peopletofol
low.Forexample,wi
the-mai
lyoushouldcompoundseveral
smallermessagesintoonee- mailsoyoudonotuseupunnecessar y
memor y.
Chapt
er5

QUESTI
ONS:POWERANDLEADERSHI
P

• Def
inet
hef
oll
owi
ngt
erms:
• Power
.
[
2]
• Leader
shi
p.
[
2]
• Di
ff
erent
iat
ebet
weenpowerandl
eader
shi
p.
[
3]
• St
ateanythr
eef
ormsofpower
.
[
3]
• Out
li
neanytwof
ormsofpower
.
[4]
• Expl
ainanythr
eet
ypesofpower
.
[6]
• Di
sti
ngui
shbet
weenmanager
sandl
eader
s.
[
5]
• Di
scussthet
rai
tappr
oacht
oleader
shi
p.
[
9]
• Whataret
hediff
erencesbet
weenaut
ocr
ati
canddemocr
ati
cleader
shi
p
st
yle? [4]
• Expl
ainanyt
wol
eader
shi
pst
yles.
[5]
• Whatar
ethechar
act
eri
sti
csoft
hef
oll
owi
ng:
• Aut
ocr
ati
cstyl
e.
[
4]
• Democr
ati
cst
yle.
[
4]
• Explai
nwhatismeantbyexpl
oit
ati
ve–aut
hor
it
ati
vest
ylei
nleader
shi
p
study. [
4]
• Di
scussthef
act
orswhi
chi
nfl
uencet
hechoi
ceoft
hel
eader
shi
pst
yle.
[
25]
 • Eval
uat
ethei
nfl
uencei
nfor
mall
eader
shi
pmi
ghthaveonabusi
ness.
[
12]
• I
sther
easingl
ebestst
ylei
nleader
shi
p?
[
6]
• a. Out
li
nethepr
inci
plesoft
hesci
ent
if
icmanagement
.
[8]
b.Doesthesci
ent
if
icmanagementhaveanyr
elevancet
omoder
nwor
ld?
Justi
fy
youranswer
.

POWERANDLEADERSHI
P

Poweristhecapaci
tyofanindi
vidualt
oi nf
luenceagr
oupofpeopl
etowor
k
t
owardstheachi
evementofacommonobj ect
ive.

Sour
cesofPower

• Fr
enchandRevendevel
oped5sour
cesofpowerwhi
char
e:
1. Coer
civePower

• Iti
sthepowerbasedonfearoft
hemanagerbecauset
hemanageri
s
theonlyonewhohavepowerandhavet heri
ghttopuni
shandfir
e
employeesoraut
hor
it
ytorai
sesal
ari
es.
 • I
tist
hepowert
oenf
orcecompl
iance.
2. Exper
tPower

• Iti
sthepowert
hataper
sonr
ecei
vesbecauseofaspeci
alski
llor
knowl
edge.
• Forexampl
e,adoct
orhasexper
tpoweroverapat
ient
.
3. Legi
ti
mat
ePower

• Itisthepowerapersonrecei
vesasar
esul
tofhi
sposi
ti
onont
he
hier
archyofanor
gani
zat
ion.
• Forexample,
thechi
efexecut
iveof
fi
cerhasl
egi
ti
mat
epoweroverhi
s
subordi
nat
es.
4. Rewar
dPower

• Iti
spowerbasedont
heabi
li
tyt
odistr
ibuterewardsthatother
svi
ew
asval
uabl
eandpeopl
ecompl
ybecauseitproducesbenefi
ts.
5. Ref
erentPower
s

• Thi
sispowerbasedonper
sonalat
tr
ibut
esofal
eader
.
• Itcan also bepowerbased on t
heabilit
yt oi
mit
atet
heposi
ti
ve
charact
erist
icsandbehavi
oroft
hei
rsuper
ior.
6. I
nfor
mat
ionalPower

• Powert hatcomes f r
om access and contr
olofinfor
mation,for
example,peopl
einanor gani
zat
ionwhohaveknowledgethatother
s’
needscanmaket hosepeoplet
odefendonthem.
Diff
erencesBet
weenPowerandLeadershi
p
Power Leader
ship
Vestedinposi
ti
ons Notvest
edinpositi
ons
Notinborn Canbeinborn
The capacity to i
nfl
uence or exer
t Theabil
it
ytoinf
luence
pressure

Leader
shi
p

• I
tist
heabi
li
tyofanindi
vidualt
oinf
luenceagr oupofpeopl
etowor
k
t
owar
dst
heachi
evementofacommonobj ect
ive.

• Foral
eadert
obeef
fect
ive,
heshoul
dhavef
oll
ower
s.
Char
act
eri
sti
cs/
Qual
it
iesofaLeader

• Havepositi
vesel
f-
image,backedupwi
thagenui
neabi
li
tyandr
eal
ist
ic
aspi
rat
ions.
• Haveavi
sionandcommi
tmentt
osuggestr
adi
calsol
uti
ons.
• Ar
eexper
tsi
npar
ti
cul
arf
iel
dsandwel
l-
readi
never
ythi
ngel
se.
• Leadersareoft
encr
eat
iveandinnovat
ive,t
heytendt
oseeknewi
deasto
problems,makesur
ethatimport
antthingsar
edoneandt r
ytoi
mprove
standards.
Theor
iesofLeader
shi
p

1.TheTr
aitAppr
oacht
oLeader
shi
p

• I
tshowst
hatl
eader
sar
ebor
nnotmade.
• Mostpeopl
earebor
nwiththequali
ti
esofl
eader
shi
psuchasi
ntel
li
gence,
cour
ageousandsel
f-
conf
idence.
• MargaretThat
cherwasregar
dedasaneffect
ivel
eaderbecauseshewas
hi
ghlyconfi
dent,
deter
minedandi
nnovat
ive.
• NelsonMandelawasalsoaneff
ecti
vel
eaderbecauseofhist
rai
tsor
quali
ti
essuchascour
age,
sel
f-
det
ermi
nat
ionandcreat
ivi
ty.
• Trait
srefert
oi nbor
nchar
act
eri
sti
csonaper
sonsuchasi
ntel
li
gence,
personal
it
yetc.
Cr
it
ici
sm oft
heTr
ait
sAppr
oach

• Itdi
dnotconsidertherol
eoft heenvi
ronment(nat
ure)onwhich
envi
ronmentpl
aysanimpor
tantr
olei
nshapingl
eader
shipt
rai
ts.
• Thi
si st
her easonf ort
heexist
enceofinst
it
uti
onsofhigherlear
ning
and col
leges where peopl
e aretrai
ned i
n var
ious di
sci
pli
nes li
ke
management ,f
inanceandaccounti
ng.
2.TheBehavi
oralTheor
y

• Focusesont
hest
udyofspeci
fi
cbehavi
orsofal
eader
.
• Forbehavi
oraltheor
ist
s,al
eader’
sbehaviori
sthebestpr
edict
orofhis
l
eadershi
pinfl
uencesandasar esul
tisthebestdet
ermi
nantofhi
s/her
l
eadershi
psuccess.
• Thisbehavi
orfocusedapproachpr
ovi
desrealmar
keti
ngpot
enti
alas
behavi
orscanbecondit
ionedinamannert
hatonecanhaveaspeci
fi
c
 r
esponset
ospeci
fi
cst
imul
i.
• Mor
eover
,itstat
esthatanyonecanbemadeal eaderbyteachi
ngt
hem
t
hemostappropri
atebehavi
oralr
esponsef
oranygivensi
tuati
on.
Leader
shi
pSt
yles

• Ther
ear
efourmai
nleader
shi
pst
yles:
• Aut
ocr
ati
c.
• Democr
ati
c.
• Pat
ernal
ist
ic.
• Lai
ssezFai
re.
1.Aut
ocr
ati
cLeader
shi
pSt
yle

• Thi
siswher
ebyt
hel
eaderr
etai
nsal
ltheaut
hor
it
y.
• Ther
eisonewaycommuni
cat
ion.
• Leader
susef
orce,
thr
eat
sandpuni
shment
s.
• Pr
oduct
ioni
sver
ylow.
• Ther
eishi
ghl
evelofl
abort
urnover
.
• Mot
ivat
ioni
sver
ylow.
• Hi
ghl
evelofconf
li
cts.
• Ther
eisqui
ckdeci
sionmaki
ngsi
ncei
tiscent
ral
ized.
• I
tinst
il
lsdi
sci
pli
neamongt
hesubor
dinat
es.
• Thestyl
eisappl
icabl
einthearmedfor
ceswheretheremaybeneedf
or
thet
roopsqui
ckl
yandf oror
der
stobeobeyedi
nstant
ly.
2.Democr
ati
cLeader
shi
pSt
yle(
Consul
tat
iveLeader
shi
pSt
yle)

• Thel
eaderconsul
tshi
ssubor
dinat
es.
• Ther
eisdi
visi
onofwor
k.
• Ther
eist
wowaycommuni
cat
ion.
• Mor
eti
mei
sspenti
ndeci
sionmaki
ngr
athert
hani
nwor
king.
• Wor
ker
shaveper
sonalcommi
tmentt
otheor
gani
zat
ion.
• Ther
eishi
ghl
evelofempl
oyeei
nvol
vementi
ndeci
sionmaki
ng.
 • Managementmayl
osecont
roloft
hewor
kfor
ce.
• Hi
ghqual
it
ypr
oduct
sar
epr
oduced.
• Hi
ghl
evelofmot
ivat
ionl
eadi
ngt
ogoodi
ndust
ri
alr
elat
ions.
• Levelofl
abort
urnoveri
slower
sact
ivi
ti
es.
• Ther
eishi
ghr
ateoft
rustbet
weent
hesubor
dinat
esandsuper
ior
s.
3.Lai
ssezFai
reLeader
shi
pSt
yle

• Thi
shasbot
hfeat
uresofaut
ocr
ati
canddemocr
ati
cleader
shi
pst
yles.
• Al
lowsempl
oyeest
ocar
ryoutact
ivi
ti
esf
reel
ywi
thi
nthebr
oadl
imi
ts.
• Theresul
tisar el
axedat
mospher
ebutwher
ether
ear
efew gui
del
ines
anddir
ect
ions.
• Thi
scanr
esul
tinpoorpr
oduct
ivi
ty.
• I
tismor
eappl
icabl
eforr
esear
chanddesi
gnt
eams.
4.Pat
ernal
ist
ic

• I
tisaf
athert
osonormot
hert
odaught
err
elat
ionshi
p.
Rensi
sLi
ber
t’
sFourManagementSt
ylesofLeader
shi
p

1.Expl
oit
ati
ve–Aut
hor
it
ati
vest
yle

• Themanager
smakeallwor
krel
ateddeci
sions,
thatis,
whati
stobedone,
bywhom,howandwhentheworkist
obecompl eted.
• Subordinatesareexpect
edt
oli
stencar
eful
ly,
obeyexpl
ici
tl
yandexecut
e
tasksfait
hfull
y.
• Theper
for
mancest
andar
dsandt
hewor
kmet
hodsar
ecl
osel
ymoni
tor
ed.
• Manager
sbel
ievet
hatwor
ker
shavenot
hingt
ocont
ri
but
etoqual
it
y.
• Worker
sfeart
hei
rmanager
swi
llpuni
sht
hem whenst
andar
dsar
enot
at
tai
ned.
• Ther
eispoort
eam wor
k.
• Ther
eisonewaycommuni
cat
ion,
thati
s,t
opdownappr
oach.
• Manager
suset
hreat
s,puni
shment
sandf
orcet
othei
rsubor
dinat
es.
• Thel
evelofmot
ivat
ioni
sver
ylow.
• Ther
eishi
gherl
evelofl
abort
urnover
.
 • Manager
sputl
it
tl
etr
ustandconf
idencei
nthei
rsubor
dinat
es.
2.Benevol
ent

• Managersgi
veorder
sbutt
heyallow t
hei
rsubor
dinat
est
oexpressthei
r
opi
nionsandsometi
mesdi
scussi
onsareper
mitt
edandexpl
anati
onsare
gi
ven.
• Whensubor
dinat
esexceedt
hei
rtar
get
s,r
ewar
dsar
egi
ven.
• Manager
sbelievet
hattheyknowthei
rworkanddonothavet
oli
stent
o
t
hei
rsubordi
natesunl
essiti
sanideat
hatappl
iest
othem.
• Subor
dinat
esar
egi
venf
lexi
bil
it
ytocar
ryoutt
hei
rdut
ies.
3.Consul
tat
ive

• Managerssetgoal
sandi
ssuegener
alor
der
saf
terdi
scussi
ngwi
tht
hei
r
subor
dinat
es.
• Subor
dinat
esmaket
hei
rowndeci
sionsonhowt
ocar
ryoutt
hedut
ies.
• Rewar
dsar
eusedr
athert
hant
hreat
s.
• Subor
dinat
esar
efr
eet
odi
scusswor
krel
atedi
ssueswi
tht
hei
rmanager
s.
4.Tot
alPar
ti
cipat
ion/
Par
ti
cipat
iveAppr
oach

• Goal
sar
esetandwor
krel
ateddeci
sionsar
emadebyt
hegr
oup.
• Leader
shavecompl
eteconf
idenceandt
heyt
rustt
hei
rsubor
dinat
es.
• Par
ti
cipat
ioni
sencour
agedandt
her
eist
otalcommi
tment
.
• Ther
eisl
owl
evelofconf
li
cts.
• Hi
ghl
evel
sofpr
oduct
ivi
ty.
• Lowl
evel
sofl
abort
urnover
.
Fact
orsWhi
chDet
ermi
net
heChoi
ceofLeader
shi
pSt
yle

1.Thedemandoft
hej
ob/
nat
ureoft
hej
ob

• Thetasksrequi
rement
sinf
luencet
hel
eader
shi
pst
ylet
oadaptt
oagi
ven
si
tuat
ion.
• Jobst hatrequi
repreciseinst
ruct
ionssuch asoper
ati
onsr
equi
rean
autocr
aticl
eader
shi
pst yle.
2.Or
gani
zat
ionalcl
imat
e/cul
tur
e
 • Cul
tur
econsi
stsofval
ues,
bel
ief
s,nor
msadopt
edi
nanor
gani
zat
ion.
• Cult
ureal
sor
efer
stot
hewayi
nwhi
chpeopl
einanor
gani
zat
iondot
hei
r
thi
ngs.
3.Expect
ati
onsoft
hesuper
ior
s

• Thesear
ever
yimpor
tanti
ndet
ermi
ningt
hel
eader
shi
pst
yle.
• On mostoft
heor
gani
zat
ions,t
hemanager
scopyt
hest
yleoft
hei
r
super
ior
s.
4.Thel
eader
s’pastexper
ienceandexpect
ati
ons

• Themanager
’sval
ues,
backgr
oundmayaf
fecthi
schoi
ceofl
eader
shi
p.
• However
,thi
sdoesnotmeanhecannotchangehi
sst
yleofl
eader
shi
p.
5.Subor
dinat
es’
char
act
eri
sti
cs,
expect
ati
onsandbehavi
or

• Thechar
act
eri
sti
csofsubor
dinat
esmayi
nfl
uencet
hel
eader
shi
pst
yle.
• Whenempl
oyeesar
ewellt
rai
ned,whent
heypr
efert
opl
anandor
gani
ze
t
hei
rworkt
henademocr
ati
cstyl
emaybeused.
• Insomesituat
ionsleader
sar
eexpect
edt
obeaut
ocr
ati
cbecauset
hei
r
subor
dinat
esexpectit
.
6.Peer
-col
league-
wor
kmat
eexpect
ati
ons

• Thecoll
eaguesofthemanager
spl
ayani
mpor
tantr
olei
ninf
luenci
ngt
he
st
yleofl
eadershi
p.
• Manager
sadoptast
ylesi
mil
art
othatofhi
speer
sandf
ri
ends.
Dif
fer encesBet weenAut ocr ati
candDemocr ati
cLeader shipSt yle
Autocr at
icLeader ship Democr aticLeadershi p
Theleaderi sthesol edecisionmaker . Leadermakesdeci si onsi
nconsultati
on
withhissubor di
nates.
Therei sonewaycommuni cation. Thereistwowaycommuni cation.
Associ at
edwi thtaskorientedst yle. People-ori
entedstyle.
Implicit obedi ence of or der s and Int
erchangeofi deasandr ecognit
ionof
i
nstrument s. humanval ues.
The mot i
vati
on t echnique i sf earand Themot i
vati
ontechni quei
srewardsand
punishment . i
nvolvement .

I
nfor
malLeader
shi
p

• Leader
shi
pmaybei
nfor
mali
nthesenset
hatoneper
sondomi
nat
esa
 group because oft hei
rpersonal
it
y,posi
ti
on,access t
oinf
ormati
on,
speci
alknowledge,experi
encesandhencet
heorgani
zati
onmusti
dent
ify
suchinfor
malleaders.
• Suchl
eader
sar
eabl
etomot
ivat
ethegr
oupandl
eadt
hem.
Benef
it
sofI
nfor
malLeader
shi
p

• Thefir
m canusetheinfor
malleadertoinfl
uencetheot hermemberst
o
acceptchange.Supposethereisresist
ancet o change,theinf
ormal
l
eadercanusehissoci
alchar
acter
ist
ictopersuadeothers.
• The informalleader can hel
pt o solve some per
sonalprobl
ems
exper
iencedbywor ker
s,forexample,f
ami l
yprobl
ems.Formall
eader
s
mayfailtosol
vesuchissues.
• Theyhel
pin sat
isf
ying soci
alneedsbyor
gani
zing par
ti
es.Thi
swi
ll
i
mprovet
hemoral
eoft heworker
s.
• I
nfor
mal
wor
ker
sar
egoodcommuni
cat
orsandar
ecl
oset
owor
ker
s.
• I
nfor
mal
leader
scanmot
ivat
ethewor
ker
smor
ethanf
ormal
leader
scan.
Pr
obl
emsofI
nfor
malLeader
shi
p

• Wor ker
scanusei nfor
mall
eaderst
odemandunr
eal
ist
ici
ncent
ives,f
or
exampl e,demandi
ngmorewageswhenaf
ir
misfaci
ngser
iousf
inanci
al
problems.
• Someti
mestheinf
ormall
eader
scanworkagai
nstt
hef
ir
m andmi
ght
i
nfl
uencewor
ker
stoworkagai
nstt
hef
ir
m.

I
MPACTOFI
CTONPOWERANDLEADERSHI
P

• I
mpr
ovesbusi
nessef
fi
ciencybyaut
omat
ingi
nfor
mat
ionpr
ocessi
ng.

• I
mpr
ovesmanagementef
fect
ivenessbysat
isf
yingi
nfor
mat
ionneeds.
 • I
mpr
ovescompet
it
ivenessbyaf
fect
ingt
hebusi
nessst
rat
egy.

Chapt
er6

QUESTI
ONS:MOTI
VATI
ON
• Whati
smeantbyt
het
erm mot
ivat
ion?
[
2]
• WhywasF.
W.Tayl
orr
egar
dedast
hef
atherofsci
ent
if
icmanagement
?
[
4]
• Howusefular
ethemot
ivat
ionalt
heor
ies?
[
4]
• Expl
aint
hemeani
ngoft
het
erm Hawt
hor
neEf
fect
.
[
3]
• Canwor
ker
sbesor
elymot
ivat
edbyf
inanci
almot
ivat
orsal
one?
[
6]
• Evaluate the rel
evance of mot
ivat
ional t
heor
ies i
n moder
n day
organizat
ionsi
n [ 25]
Zimbabwe.
• Withrefer
ence t
o Tayl
orand Her
zber
g,eval
uat
ethe usef
ulness of
f
inanci
al [
25]
i
ncenti
vesinmoti
vat
ingstaf
f.
• Di
scusshow af ir
m canusewor
kst
udyandot
hermot
ivat
ionalt
ool
sto
ef
fect
ivel
y[ 25]
moti
vateit
sstaff
.
• To whatext entdo you agr
ee wi
tht
he st
atement“
wor
ker
s ar
e onl
y
motivatedby [ 25]
fi
nancialincenti
ves”
.
• Eval
uat
etheusef
ulnessoft
hef
oll
owi
ngt
oanor
gani
zat
ioni
nmot
ivat
ion:
• Jobr
otat
ion.
[
5]
• Jobenl
argement
.
[5]
• Jobenr
ichment
.
[5]
• ManagementbyObj
ect
ives.
[5]
• Team wor
k.
[5]
• Wor
ker
s’par
ti
cipat
ion.
 [
5]
• CommentonHer
zber
g’st
wof
act
ort
heor
y.
[4]
• Give reasons why Her
zber
g di
sti
ngui
shed bet
ween hygi
ene and
motivat
ional [
3]
fact
ors.
• Gi
vet
heneedsandexpect
ati
onsoft
hewor
keratt
hewor
kpl
ace.
[
4]
• Di
sti
ngui
shbet
weeni
ntr
insi
candext
ri
nsi
cmot
ivat
ors.
[
8]
• Usi
ngexampl
es,
expl
aint
hef
oll
owi
ngt
erms:
• I
ntr
insi
cmot i
vat
ors.
[4]
• Ext
ri
nsi
cmoti
vat
ors.
[
4]
• Expl
ainthecont
ri
but
ionsmadebyTayl
ort
omot
ivat
ion.
[4]
• Whatar
ethecont
ri
but
ionsofHer
zber
gtomot
ivat
ion?
[
4]
• Expl
ainwhatAbraham Masl
owmeantwi
thsel
f-
act
ual
izat
ionandexpl
ain
whyhe[ 4]
di
dputitatthet
opofthepyr
ami
d.
• I
ll
ust
rat
eMasl
ow’
shi
erar
chyofneeds.
[
4]
• “Abraham Maslow’
st heor
y ofmoti
vati
on is out
dat
ed and has no
contemporar
y[25]
placeint
hismoderner
aofmanagement.Di
scuss.
• Def
inet
hef
oll
owi
ngt
ermsusi
ngexampl
es:
• Physi
ologi
calneeds.
[
4]
• Secur
ityneeds.
[
4]
• Soci
alneeds.
[4]
 • Est
eem needs.
[4]
• Di
sti
ngui
shbet
weencont
entt
heor
yandpr
ocesst
heor
y.
[
3]
• How can a cell
phone manuf
act
uri
ng f
ir
m use Masl
ow’
stheor
yto
moti
vat
eit
s [ 4]
st
aff
.
• St
ateanyt
wof
inanci
alandnon-
fi
nanci
ali
ncent
ives.
[4]
• Howmightaf
ir
m benef
itf
rom havi
ngawel
l-
mot
ivat
edwor
kpl
ace?
[
4]
• Assesst
heusef
ulnessoft
hef
oll
owi
ngt
oanor
gani
zat
ion:
• Pi
ecer
ate.
[
4]
• Ti
mer
ate.
[4]
• Per
for
mancer
elat
edpay.
[
4]
• Expl
ainhowaf
ir
m canmot
ivat
eit
sempl
oyeesf
inanci
all
y.
[4]
• Just
if
ytheneedf
ormot
ivat
iont
oanor
gani
zat
ion.
[
4]
• Sat
eanyfouraspect
sofj
obdesi
gn.
[4]
• Def
ine:
• Jobr
edesi
gn.
[
4]
• Aut
onomywor
kgr
oup
[4]
• Eval
uat
etherel
evanceofF.
W.Tayl
or’
stheor
ytoZi
mbabweanf
ir
ms.
[
25]
• Expl
ainDavidMcCl
ell
and’
s3needst
heor
y.
[6]
 • Expl
aint
heconceptofmanagementbyobj
ect
ivesandeval
uat
eit
swor
th.
[
25]

MOTI
VATI
ON

Motivati
on isthesetofprocessesthatarousedir
ectandmaint
ainhuman
behaviortowar
dsatt
aini
ngsomegoals.Iti
st hecommit
menttodosomethi
ng.
Motivati
ondealswi
thhowbehaviori
senergi
zed,howiti
sdir
ect
edandhowitis
sustai
ned.

Mot
ivat
ionalt
heor
iesi
ncl
ude:

• Ear
lyvi
ewsonmot
ivat
ion.
• Cont
ent
/needst
heor
ies.
• Pr
ocesst
heor
ies.
• Cont
empor
aryt
heor
ies.
Sci
ent
if
icManagementAppr
oacht
oMot
ivat
ion
Fr
edr
icTayl
or–Fat
herFounderofSci
ent
if
icManagement

• Oneofthepi oneer
sofsci
ent
if
icmanagementconsi
deredmot
ivati
onasit
rel
ates t
oi ndivi
dual
s atwork,the or
gani
zat
ion i
tsel
fand the i
nter
-
rel
ati
onshipsintheor
gani
zat
ion.
I
mpl
icat
ionsofTayl
or’
sTheor
y

• Hevi
ewedworker
sasgener
all
ylazyneedi
ngt
ightcont
rolt
oensur
ethat
t
heydel
iver
.
• He consi
dered t
hem as l
acki
ng ambi
ti
ons and unwi
ll
ing t
otake
r
esponsi
bil
it
y.
• Manisaneconomi
cmanconcer
nedwit
hmaxi
mizi
nghi
seconomicgain.
Sothefi
rm mustgi
vet
heemployeesmor
ewagessot hatout
putcan
i
ncr
ease.
• Tayl
orthoughtworker
sweremoti
vat
edbymoneyandt
hati
fgi
venhi
gher
sal
ari
es,theywi
lli
mprovepr
oduct
ivi
ty.
• He al
so r
ecommended bonus payments and i
ncent
ive schemes t
o
mot
ivat
eemployeest
oper
form atahi
gherlevel
.
• Devel
opedt
hecar
rotandst
ickappr
oacht
omot
ivat
etheempl
oyees.
• He was concer
ned aboutcr
eat
ing condi
ti
ons whi
ch woul
d ensur
e
maxi
mum producti
on.
• Healsoci
tedt
hati
ndi
vidual
sshoul
dbeconsi
stentwi
thor
gani
zat
ional
goal
s.
• Heidentif
iedl
ackofcooper
ati
onbetweenmanagementandlaborasone
oft
her easonswor
kersdidnotper
for
mt ot
heful
lestpot
ent
ial
.
• Heal
socitedpoorintegr
ati
onofwor
ker
stot
hei
rwor
krol
esasanot
her
pr
obl
em i
norganizat
ions.
• Hewasdetermi
nedt hatwor
kerswouldbemot i
vatedtowor
kbet
teri
f
t
hei
rjobswer
ebrokendownintosmal
lerr
epet
it
ivetasks.
• He suggested t
hatmanager
s shoul
d give wor
kers cl
earinst
ruct
ions
abouttheirwork and t
he wor
kers shoul
df ol
low the or
derwi t
hout
quest
ion.
Advant
agesofTayl
or’
sAppr
oach

• Di
visi
onofwor kthusspeci
ali
zat
ionwil
lincreaset
heproduct
ivi
tyand
i
ncreasequal
it
ysi
nceeachworkerwil
lbedoingwhatheknowsbestand
 haveski
ll
sin.
• Fai
rnesst
opayeesi nceitsupport
stheuseofpi
ecer
atesyst
em,thusi
fa
workerpr
oducesmor euni t
s,hei sgi
venmoreaspayeebecausether
e
wil
lbenoconfl
ictbetweenwor ker
s.
• Moti
vat
esthewor
ker
stoworkhard(pi
ecer
atesyst
em)
,mor
epr
oduct
s
wi
lli
ncr
easet
hefi
rm’
spr
oduct
ivi
ty.
• Itl
eadstoimprovement
sint
hewor
kingmet
hodsr
esul
ti
ngi
neconomi
c
gai
nsinproduct
ivi
ty.
• Taylor
’s approach has cl
ose li
nks wi
ththe conceptofaut ocrat
ic
management .Thatmakesthetheorymor
eusef
ulsincei
tissupport
edby
othermanagementst yl
es.
• Managementwillbecomemor einvol
vedwi
thpr
oduct
ionact
ivi
ti
esand
t
husencouragedtoshowleader
ship.
Di
sadvant
agesofTayl
or’
sAppr
oach

• Notever
yoneismot i
vated bymoney,t hatis,Tayl
oroverl
ooked t
hat
wor
kersworkfordi
ff
erentreasons.Accor
dingtoHerzber
g,non-
fi
nanci
al
f
actor
salsomoti
vat
ewor kers.
• Itignorestheexi
stenceofgroupsandteamsbecausei
ndi
vidual
smight
reducet heproducti
vit
yofthef i
rm si
ncetheywouldl
acksupportand
sharingofideas.
• I
tleaves no r
oom f orindi
vidualprefer
ences and i
niti
ati
ves because
managementmi ghtnotbeawar eofsomegoodi deasfrom subordi
nates
t
hatmighthel
pthef i
rmtoincreaseproducti
vit
y.
• Piecerat
esystem isappr
opr
iat
ewhenout
puti
sst
andar
dized.I
tisnot
appli
cabl
eforser
vice.
• Wor
ker
sar
egi
venbor
ingandr
epet
it
ivet
askst
ocar
ryout
.
• Becauseofpiecer
atesyst
em,worker
smi
ghtbemor
econcer
nedabout
quanti
tyandcompr
omiseonqual
it
y.
• I
tignor
est
hatwor
ker
shavesoci
alneeds.
• Excessi
ve speci
ali
zat
ion l
eads to deski
ll
ing and cause wor
ker
sto
becomeali
enatedandfrust
rat
ed.
HumanRel
ati
onsModel–Devel
opedByGeor
geEl
tonMayo

• Thehumanr
elat
ionsmodell
ookedatmot
ivat
ionf
rom t
heper
spect
iveof
 humanneeds.
• Hefoundedthattheboredom cr
eat
edbyrepet
it
ivet
asksact
ual
lyreduced
wor
kers’soci
alcontact
sthathel
pstocr
eateandsustai
nmoti
vati
on.
• Heintr
oducedthehumanr elati
onsschoolofthought
swhichfocusedon
managerstaki
ngmor einterestont heworkerst
reat
ingt
hem aspeople
who have wor t
hwhi
le opinions and real
izi
ng t
hatemployees enj
oy
i
nter
acti
ngwi t
heachother.
TheHawt
hor
neExper
iment
s

• TheHawt hor
neExperi
mentswer
ecar
ri
edoutatt
heWest
ernel
ect
ri
c
pl
antnearChicagoi
nUSA.
• Wor
ker
swer
edi
videdi
ntogr
oups,
thati
s,cont
rolgr
oupswi
tht
estgr
oups.
• Hest
ressedt
hei
mpactofeachoft
hef
oll
owi
ngvar
iabl
es’
per
for
mance:
• Temper
atur
e.
• Wor
kinghour
s.
• Resthour
s.
• Wager
ate.
• I
ll
umi
nat
ion.
• Super
visi
on.
• The object
ive ofthe exper
imentwas to deter
mine the r
elat
ionship
bet
weent helevelofl
ight
inginthewor
kingplaceandproduct
ivit
yoft he
worker
s.
• Thetestgr
oupwassubject
edtodeli
berat
echangesi
nli
ght
ingwhi
let
he
cont
rolgr
oupl
ight
ingwasnotchanged.
• Theresul
tsoftheexperi
mentwerethatwhenli
ghti
ngcondi
ti
onswere
i
mprovedproduct
ivi
tyf
orthet
estgr
ouptendedt
oincr
easeasexpect
ed.
• Surpr
isi
ngl
y, when l
ight
ing condi
ti
ons wer
e l
ower
ed, pr
oduct
ivi
ty
conti
nuedt
oincr
ease.
• Atthesametime,contr
olgr
oup’
sproducti
vit
yincr
easedjustl
iket
hatof
t
het estgr
oupeventhought
hecont
rolgroupexperi
encednochangesin
l
ightni
ng.
• Int
hesecondexperi
mentt
hetestgr
ouphadi
tswagesi
ncr
eased,r
est
per
iods,
reducedt
hewor
kday.
 • Theresultwasthatpr
oductivi
tyi
ncreasesoverti
meandt hendecreases.
He concluded that employees work harder i
ft hey bel
ieved that
managementwasconcer nedwi t
htheirwel
faredespi
techall
engeswhi ch
maybef acedsuchasloweringli
ght
ing.
• Ifwor
ker
sappeart
ohavemeani
ngandifpeoplefeelval
uedt
heywi
llbe
cont
enti
nthei
rwor
kther
ebyi
ncr
easi
ngproduct
ivi
ty.
• Thisrel
ati
onshipbet
weenat
tent
ionpai
dtoempl
oyeesandani
ncr
easei
n
product
ivi
tybecameknownastheHawthor
neef
fect
.
• Fr
om t
heexper
iences,
Mayoconcl
udedt
hatwor
ker
scanbemot
ivat
edby:
• Bet
tercommuni
cat
ionbet
weenmanager
sandwor
ker
s.
• Wor
kingi
ngr
oupsort
eams.
• Ensur
ewor
kisi
nter
est
ingandr
epet
it
ive.
• Tr
aini
nganddevel
opment
.
I
ngener
al,
hear
guedt
hat
:

• I
ndi
vidual
sar
esoci
albei
ngswi
thneedswhi
chhavet
obeaddr
essed.
• Peopl
earenotonl ymot i
vated byeconomicconsi
der
ati
onsbutbya
var
iet
yofsoci
alandpsychologi
calfact
ors.
• I
ndi
vidual
srequi
redecentt
reat
ment
.
• I
ndi
vidual
sneedempower
ment(
cont
roloversi
tuat
ions)
.
• Wor
ker
shavet
her
ightt
oinf
ormat
ion(
communi
cat
ion)
.
• I
nfor
mal
groupsshoul
dber
ecogni
zed.
• Secur
it
yenhancesper
for
mance.
• Posi
ti
vef
eedbacki
sessent
ial
ism.
Cr
it
ici
sm oft
heTheor
y

• Somecr i
ti
csarguethatMayo’
sapproachi
slargel
ysubj
ect
ivebecause
workersareusual
lymanipul
atedt
owor khar
dbymanager s(vi
ewsof
theor
yx).
• Ot
her
svi
ewedt
heappr
oachasawayofr
educi
nguni
onpower
.
• Theassumpti
ont
hatwor
ker
sandmanagementshar
ethesamegoal
sis
notr
eali
sti
c.
• Thei
deaofwor
kpl
aceconcer
nsmaynotal
waysexi
stasi
tmayt
aket
ime
 t
oagr
eeduet
ovar
iat
ionsi
nideasandt
hinki
ng.
• Informalgr oups may end up negati
vel
y af
fecti
ng t
he goal
s ofthe
organizat
ion,forexample,ext
endingthei
rmeetingsbytwentyminut
es
whi chendsupaf f
ecti
ngproducti
vit
y.
Cont
entTheor
y

• Thesetheor
iesf
ocusonwhatmot
ivat
espeopl
e,t
hati
s,aneedt
hatmust
besati
sfi
ed.
• Theneedmaybesat i
sfiedbyar ewar
dthatisei
therextr
insi
ctot
het
ask,
forexampl
e,moneyorintr
insi
c,f
orexample,
jobsati
sfact
ion.
• Keycont
ri
but
orst
othi
sappr
oachi
ncl
ude:
• Masl
ow’
shi
erar
chyofneeds.
• Her
zber
g’st
wof
act
ort
heor
y.
• McGr
egor
’st
heor
yXandY.
• McCl
ell
and’
stheor
y.
Abr
aham Masl
ow’
sHi
erar
chyofNeeds

• Abraham Masl
ow vi
ewedmoti
vat
ionasapr ogr
essi
onofneedsr angi
ng
fr
om themostbasi
cneedst
othehighestneedofsel
f-
act
ual
izat
ion.
• Maslowsuggest edthatpeopleareinaconti
nuoussateofmoti
vati
onand
thatthenatureofthatmot i
vati
onisvari
abl
eandcompl ex.Hesuggest
ed
thatpeoplear erar
elyinast at
eofcompl et
esatisf
acti
onexceptfora
shortwhile.Astheyf ul
fi
lloneneed,anotherassumespr omi
nenceand
mot i
vatesfur
thereff
ortunti
lsati
sfi
ed.
• Unlessandunt i
lal
owerneedhasbeensat
isfi
ed,hi
gherneedsdonot
mot i
vat
e.Onceaneedissati
sfi
ed,i
tnolongermotivat
es,onl
yunmet
needsmotivat
e.
TheHi
erar
chyNeeds
• Physi
ologicalNeeds–I ncl
udeshelter
,food,oxygen,sexuali
nter
course,
andclothi
ng.Normallypeoplecomet owor kafterthei
rbasicneedsare
sat
isf
ied.Basicneedscanbesatisf
iedthroughraisi
ngemployees’wages.
• Safet
yandSecur it
yNeeds–Theyar eneedswhi chincludejobsecur
ity
andsafewor kingenvironmentandot hernecessit
iessuchasmedi cal
ai
dsandpensi ons.Workerswil
lbemotivatedtoworkwel li
fthei
rsecur
ity
needsarewel lt akencareof.Theseneedscanbesat isf
iedthr
ough
medicalai
ds,suppl yofprot
ect
ivecl
othing,forexample,helmetsandby
off
eri
ngcontracts.
• Soci alNeeds– Theyareref
erredtoasneedsofaf fi
li
ati
on,thati
s,t
he
wor kersbecome“thesoci
almen” ,needt obel
oved,acceptedbyboth
managementand t heco-
workers.Wor ker
swantt o havea senseof
belonging.Thi
scanbeachi evedbywayofbui l
dingspor t
sclubsand
al
lowi ngpeopl
etobelongt
oinformalgroups.
• Esteem Needs–Theyar eneedsforachievementandtheyar eintended
toboostanindi
vidual’
smor al
e.Hencet hewor keri
smotivatedifhe/she
i
sachievingsomethi
ng, f
orexample,settar
gets.Theyal
soi ncl
udeneeds
toberespect
edandr ecogni
zedatthewor kpl
ace.
• Sel
f-Act
uali
zat
ion – Atthe epit
ome ofthe hi
erar
chy i
st he self
-
act
uali
zati
onneeds.Theyent
ailt
heabi
li
tyt
oachievethebestthatone
 cando.Theseareneedstodowi thpersonalgrowth.Theyarereal
ized
whenawor keri
sgivenaleader
shipposit
ionorwhent hewor
kerissent
forst
udi
estoacqui
remoreknowledgerel
atingt
ot hejob.
• Accor
dingt oMaslow,l
owerorderneedshavetobesat i
sfi
edfir
stfor
hi
gherorderneedstomoti
vatehencesat
isf
act
ionshoul
dstartf
rom t
he
bot
tom ofthehi
erar
chyunt
ilt
othetop.
• Hebel
ievessat
isf
iedneedsar
enon-
mot
ivat
ors.
Advant
agesofMasl
ow’
sHi
erar
chyofNeeds

• I
thel
psi
dent
if
yandcl
assi
fyallt
heneedst
hatar
eessent
ialf
orawor
ker
.
Masl
owwasablet
ocl
assi
fyhumanneeds.
• Ithel
psfi
rmstoi
denti
fywhichneedshavebeensati
sfi
edandwhichare
notatthemoment.Thi
swillhel
pittofocusontheneedsnotsati
sfi
ed
andmaintai
nmot
ivat
edworkers.
• Ital
sohelpsthemanagementtol ookforwaystosati
sfyaneed,for
exampl
e,soci
alneedscanbesat
isf
iedbypar
ti
esorbui
ldi
ngspor
tscl
ubs.
• Ithelpsi denti
fytheor derin which t
heneedsmustbesat i
sfi
ed,f
or
exampl e,a higherneed cannotbe sat isfi
ed unl
ess a l
owerneed i
s
sati
sfied,forexample,promotionwhenal owerneedi
snotsati
sfi
ed,f
or
exampl e,shel
terwi
llnotmotivatet
hewor ker.
Di
sadvant
agesofMasl
ow’
sHi
erar
chyofNeeds

• Indi
vidualbehavi
orsseemstorespondtoseveralneedsatt
hesamet i
me,
notjustoneatat i
mesot hefi
rm sati
sfyi
ngthem onebyonemi ghthave
moret i
met osati
sfyt
heneedsofthewor ker
s.
• Eachwor kercanpr oducehisownhier
archy,f
orexampl
e,somer anksel
f-
esteem higherthansafety,
hence,t
hefir
m wil
lneedtoi
denti
fytheneeds
thatar
ei mportanttoworkersrat
hert
hanusingMaslow’
sapproach.
• Thereisaprobl
em indecidingwhenaneedhasact uall
ybeensat i
sfi
ed
si
ncei ti
smor esubj ect
iveand hencea fir
m mightt hi
nka need is
sat
isfi
edwheniti
snot.Thi si
saprobl
em becausemanagersmi ghtf
ocus
onunmet(hi
gher)needswhensome( lower
)arenotyetsati
sfi
ed.
• The modelignores t
he of
ten observed behavi
orofi
ndi
vidual
s who
tol
erat
elowpayforthepr
omiseoffuturebenefi
ts.
• Ther
eisli
tt
leevi
dencet osuggestt
hatpeopl
ear
emot
ivat
edt
osat
isf
y
onl
yaneedateachlevelatat
ime.
 • Sel
f-
actual
izat
ion i
s never per
manent
ly achi
eved as suggest
ed by
Maslow.
Her
zber
g’sTwoFact
orTheor
y

• Her
zber
gdi
sti
ngui
shedbet
weeni
ntr
insi
candext
ri
nsi
cfact
ors.
I
ntr
insi
cFact
ors

• Thesearef
act
orst
hatmot
ivat
edandgaveposi
ti
vesat
isf
act
ion.They
i
nclude:
• Senseofachi
evement–r
eachi
ngorexceedi
ngt
askobj
ect
ives.
• Recogni
ti
on–ent
ail
sacknowl
edgementofachi
evementbyseni
or
st
affmemberwhi
chismoti
vat
ional
.
• Advancement–ent
ail
spr
omot
ion,
risi
ngr
ewar
dsf
orachi
evement
pr
ogress.
• Responsi
bil
it
y–ent
ail
stheoppor
tuni
tyt
oexer
ciseaut
hor
it
yand
power.
• Job int
erest – a mot
ivat
ionalj
ob shoul
d pr
ovi
de posi
ti
ve
sat
isf
acti
on.
• Gr
owt
h.
Ext
ri
nsi
c(Hygi
ene/
Mai
ntenance)Fact
ors

• Theydonotmot
ivat
ebutt
hei
rabsencemaycausedi
ssat
isf
act
ion.They
i
nclude:
• Payandbenef
it
s,f
orexampl
e,basi
cpay,
bonuses,
hol
idayset
c.
• Company pol
icy – ent
ail
srul
es and r
egul
ati
ons t
hatgover
n
empl
oyeesandemployer
s.
• Jobsecuri
ty–degr eeofconf
idencethattheemployeepossesses
regar
dingcont
inuedemploymentintheorgani
sat
ion.
• Per
sonall
if
einvolvestimespentonf
amily,f
riendsandi
nter
est
s
whi
chisusual
lyrestr
ict
edbyti
mespentatwork.
• Worki
ng condi
ti
ons,f
orexampl
e,wor
king hour
s,f
aci
li
ti
es and
equi
pment.
• St
atusi
sdetermi
nedbyt her ank,author
it
yandr
elat
ionshi
pwi
th
ot
hersr
efl
ect
ingt
helevelofacceptance.
• Tr
eat
mentatwor
k.
Cr
it
ici
sm oft
heTheor
y

• Her
zberg consider
ed monet
ary as non-motivat
ors,butdur
ing hyper
-
i
nfl
ati
onary envir
onmentmonetaryi ncent
ives pay a cr
uci
alr ol
ei n
moti
vati
ng.
• Somecr i
ti
csarguet
hatt
hevi
ewsofHerzber
gmightbelesspracti
cal
si
ncebusinessmaynotcont
inuewi
thsuchpol
icesdur
ingrecessi
on
per
iod.
• Somearguet hatHer
zbergrel
iedtoomuchontheopi
nionsofpeopleon
whatsat
isf
ies/di
ssat
isf
iespeopl
eatworkast
hismaybesubject
ive.
• Somecr
it
icsar
eoft
heopi
niont
hatHer
zber
ggavewor
ker
smor
efr
eedom.
• Needsar
enotal
waysst
rat
if
iedi
ntot
wof
act
ors.
• Oneper
son’
shygi
enef
act
ori
sanot
her
’smot
ivat
ionalf
act
or.
• Today’
smot
ivat
ionalf
act
orsmaybet
omor
row’
shygi
enef
act
or.
NeedTheor
ybyDavi
dMcCl
ell
and

• Hewasconcer nedwi
ththedif
fer
encesbetweeni
ndi
vidual
sandt
hen
under
standi
ngcommonfact
orsi
nmotivat
ion.
• Hewasconcer
nedwi
th3needs:
• Needf
orachi
evement
.
• Needf
orpower
.
• Needf
oraf
fi
li
ati
onorbel
ongi
ng.
• Theneedf
orachi
evementi
stypi
calt
oMasl
ow’
ssel
f-
act
ual
izat
ionneeds.
• Theneedf
orpoweri
ssi
mil
art
oest
eem,
egoneedsofMasl
ow.
• Accor
dingtohi
m,t
hedomi
nanceoft
heseneedsi
nfl
uencet
hebehavi
or
ofi
ndivi
dual
s.
• Hear gued thattheneed forachievementisa keyfact
ori
n human
moti
vation and isdevel
oped byenvi r
onment
alf
actor
sl i
keval
uesof
soci
ety,educati
on,pot
ent
iali
nfl
uenceetc.
• Forhimt heneedf orachi
evementi
snother
edi
tar
ybutr
esul
tsf
rom
envi
ronment
alfact
ors.
• Hest
atest
hatpeopl
ewi
thhi
ghneedf
orachi
evementusual
ly:
• Havel
owneedofaf
fi
li
ati
on.
 • Need feedbackon t
hei
rper
for
mances (
weaknesses,st
rengt
hs,
assessments).
• Seekt
askswhi
char
echal
lengi
ngbutwhi
cht
heyar
eincont
rolof
.
• Seekt
askswhi
cht
heycanexer
ciseper
sonalr
esponsi
bil
it
y.
• Needf
oraf
fi
li
ati
on–r
elat
ionshi
ps.
• Theneedtobeli
kedandacceptedbyot
her
s.Thi
sneedi
sevi
dentat
l
owerl
evel
soft
heorgani
zat
ion.
• Needforpower–deal
switht
hedegr
eeofcontr
olapersondesi
resover
si
tuat
ionsandt
hedesi
ret
ohavei
mpactandtobeinf
luent
ial
.
• Hefur
thersuggestst
hatpeopl
e’smot
ivat
ionwi
llbedet
ermi
nedbysome
per
sonal
it
yfeaturesi
nthatper
son.
Dougl
asMcGr
egor
’sTheor
yXandY

• Heconst
ruct
edt
woset
sofassumpt
ionsaboutwor
ker
s’at
ti
tudet
owar
ds
wor
k.
• Theor
y X depict
sthe ‘
the economi
c man’char
act
eri
sti
cs ofTayl
or
management.
• Theor
yYdepictsworkersaut
onomyr
esponsi
bil
it
yandgai
nsasenseof
achi
evementf
rom work.
Theor yXmanagerassumes Theor yYmanagerassumes
Wor kersinherentlydisl
ikewor kandwi l
l Spr eadi ngeffortatwor ki sasnat uralas
tryt
oavoi ditwhennecessar y. prayingandr esti
ng
Because of t hi
s,wor kers should be Empl oyees shoul d exercise t
heirown
controll
ed,di rected or t hreat
ened i n author ity and ar e rewar ded t hr
ough
order to gett owards t he company’ s effortt owards achi evement of t he
goals. organi zat i
on’
sgoal .
Theaver ageper sonwantt obedi rected Theaver ageper sonlearnst oacceptand
andcont r
oll
edandhasl it
tl
eambi tions seekr esponsi bi
lit
y.Managementshoul d
therefor
eseekst oavoidresponsibi
lit
y. cutdownoncont rolsandt hreatsand
encour age employees thr
ough
empower ment.
Pessimisticapproach. Opt imist i
cappr oach.

Accept
anceoft
henegat
ivet
heor
yXvi
ewsr
esul
tsi
n:

• Aut
ocr
ati
cleader
shi
pst
yle.

• Tr
adi
ti
onalor
gani
zat
ionalst
ruct
ure.
 • Cent
ral
izat
ionofdeci
sionmaki
ng.

• Sci
ent
if
icmanagement(
Tayl
or)
.

• Ext
ri
nsi
cfact
or;payandpuni
shment
.
Accept
anceoft
heposi
ti
vet
heor
yYvi
ewsr
esul
tsi
n:

• Fr
eer
eignst
yleofl
eader
shi
p(democr
ati
c).
• Mor
efl
exi
blest
ruct
ures.
• Asear
chofappr
opr
iat
ewayst
omot
ivat
ethewor
ker
.
• Decent
ral
izat
ionofdeci
sionmaki
ng.
• Ast
ressofi
ntr
insi
cfact
ors.
N.B.
:Probl
emsar
isewhenempl
oyeeswhoacceptt
heor
yYar
esubj
ect
edt
o
t
heoryX.

Pr
ocessTheor
ies

• Theysuggestt
hatpeopl
earemot
ivat
edtowardsr
ewardsthatt
heywant
andthattheybel
ievet
heyhaveareasonabl
echanceorexpect
anceof
obtai
ning.
• Theyfocuson ef
for
tand r
eason r
equi
red t
o accompl
ish cer
tai
n set
obj
ect
ives.
Vr
oom’
sExpect
ancyVal
enceTheor
y

Hear
guest
hatt
heur
get
odosomet
hingi
sdet
ermi
nedbyt
he:

• At
tr
acti
venessoftheoutcometotheindi
vidual(
thati
s,t
hei
mpor
tance
t
heindi
vidual
att
achest
ot heout
come)
.
• Perf
or mance– Rewar dl
inkedtoit(t
hati
s,thedegr
eetowhi
chthe
i
ndividualbel
ieves t
hatper f
ormi
ng ata cert
ainl
evelwi
lll
ead t
o
at
tainmentoft
hedesiredoutcome)
.
• Ef
fort– Per
formanceli
nkage(thatis,t
hepr obabi
li
tyassumedbyt
he
i
ndivi
dual
sthatexer
ti
ngagiveneffor
twil
lleadtoper
formance)
.
• Thet
hreevar
iabl
esar
esummedupandgi
vet
hef
oll
owi
ngequat
ion:

Wher
e:
 Vi
sval
ence–t
heval
ueofi
ncome,

Ei
sexpect
ancy–t
heper
cei
vedl
ikel
ihoodofout
come.

• Ef
for
tisnotsuf
fi
cient
;ithast
obeaccompani
edbyabi
li
tyandski
ll
.
• Jobsat
isf
act
ionwi
llr
esul
tinef
fect
ivej
obper
for
mance.
• Jobdesi
gni
sofgr
eati
mpor
tance.
Adam’
sEqui
tyTheor
ybyAdam St
acey

• I
tisaboutf
air
nessbet
weenef
for
t(i
nput
s)andr
ewar
ds.
• Inot
herwords,ther
eshouldbeasoughtofbal ancebet
weent heef
for
t
appl
iedbyemployeesandt hei
rrewards,t
hegr
eatert
heeff
ort
,themore
ther
ewardandthisenhancesmot i
vat
ion.
• N.B.
:Thefair
nessofinput
sandrewar
dsofthecompany’
semployeesis
compared tot he i
nput
s and r
ewards ofot
herpeople per
forming
comparabl
etasks.
• Equi
tyexi
stswhent her
ati
oofone’
sout
comet
ohi
s/heri
nput
sequal
s
anot
herone’
srat
io.
• Worker
sf eelsense ofinjust
ice i
ftheireff
ort
s ar
e notrewar
ded i
n
conf
ormit
ytootherpeopl
e’srewards(r
elat
ivet
othei
reff
ort
s).
• N.B.
:Equi
tydealswi
thcompar i
sonsofyourownsi t
uat
iontothesi
tuat
ion
ofot
hers,
forexampl
e,al
lteachersexpectequalr
emunerat
ion.
• Amot
ivat
ori
snot
hingwhi
char
ousesbehavi
or.
• I
fworker
spercei
vethatt
hei
rrewardsarehighert
hanper
for
mance,t
hey
i
ncr
easethei
rper
for
manceandviceversa.
• I
fwor
ker
spercei
vet
hatt
herei
sequi
tybet
weent
hei
rinput
sandr
ewar
ds,
t
heymai
ntai
nper
for
mance.
Adam’
sEqui
tyTheor
y
Fact
orsAf
fect
ingMot
ivat
ion

• Payeeorsal
ary.
• Secur
it
yofempl
oyees.
• Soci
algr
oupi
ng.
• Pr
omot
ionalaspect
s.
• Nor
ms,
val
uesandbel
ief
s.
• St
yleofl
eader
shi
p.
• Nat
ureofwor
k.
• Senseofchal
lengei
nrel
ati
ont
owor
kabi
li
ty.
• Oppor
tuni
tyt
opar
ti
cipat
eindeci
sionmaki
ng.
Empl
oyeeBenef
it
s/Fr
ingeBenef
it
s/Caf
eter
iaBenef
it
s

• Thesearetheel
ementswhi
char
eusedbyanor
gani
zat
iont
oef
fect
ivel
y
motivat
eit
sworkf
orce.
• Theycanbeeasi
lydi
videdi
ntot
wogr
oupswhi
char
efi
nanci
alandnon-
fi
nanci
al.
Fi
nanci
alBenef
it
s

• Theseincludecashandanyt hingthatcanbeconver t
edi nt
ocash,f or
example,bonus(13thcheque)
,timerat
e,pi
ecerate,per
formancerelat
ed
pay,compet encebasedpay,companycar s,houses,lunch,educati
on,
 l
oans,
hol
idayal
lowances,
medi
calai
dandsal
ari
es.
Bonus

• Thi
sisafor
m off
inanci
almot
ivat
orwhi
chi
sawar
dedoverandabovet
he
nor
malpay.
• Thi
sisgivent
oempl oyeesusual
lyattheendoftheyearoratt
heendof
aquar
teroraf
teraccompli
shingacert
aintask.
Ti
meRat
eSyst
em

• I
nthissyst
em,earni
ngsarecal
cul
atedaccor
dingt
othet
imespenton
wor
k(numberofhour
sworked×rat
eperhour)
.
• Ci
rcumst
anceswher
eti
mer
ati
sappr
opr
iat
e:
• I
norgani
zat
ionswher
eempl
oyeeshavenocont
roloverhow f
ast
t
heydothei
rwork.
• Wher
eout
puti
sofnon-
standar
dtype.
• I
nser
vicei
ndust
ri
es.
Advant
agesofTi
meRat
eSyst
em

• Lesshar
mfult
oqual
it
y.
• Lesshar
mfult
otheheal
thofwor
ker
s.
• Si
mpl
eandeasyt
ounder
stand.
• Appr
opr
iat
einser
vicei
ndust
ri
es.
Di
sadvant
agesofTi
meRat
eSyst
em

• Doesnotpr
ovi
dei
ncent
ivesf
orext
raef
for
t.
• Requi
ressuper
visi
onoft
hewor
kfor
ce.
• Worker
smaysl owdownwor
ksot
hatt
heycanwor
kformor
ehour
sand
ear
nincreasedpay.
Pi
eceRat
eSyst
em

• Iti
swher ebywor
ker
sar
epai
daccor
dingt
otheout
putorquant
it
yofi
tem
produced.
• I
tisusual
lyusedwhenout
puti
smeasur
abl
e.
• Outputcan beat
tri
but
ed t
o an i
ndi
vidualwor
kerso t
hatt
hewor
ker
recei
vesar
eward.
 • Iti
scal
cul
atedbymul
ti
plyi
ngnumberofuni
tspr
oducedbyt
her
ateper
uni
t.
• Al
owr
atemaydemot
ivat
ethewor
ker
.
• Itcanbeadj
acenttoref
lectt
hedi
ff
icul
tyoft
hej
obandst
andar
dti
me
neededt
ocomplet
eit.
Advant
agesofPi
eceRat
eSyst
em

• I
tencour
agesgr
eat
eref
fect
ivenessandf
ast
erwor
king.
• Encour
ageswor
ker
stodevi
cei
mpr
ovedmet
hods.
• Mor
eout
putpr
oduced.
• Labourcostsf
oreachwor
kisdet
ermi
nedi
nadvance.Thi
shel
pst
oseta
pri
ceforthepr
oduct.
Di
sadvant
agesofPi
eceRat
eSyst
em

• I
trequi
resout
putt
obemeasur
edandst
andar
dized.
• Wor
ker
scanbei
njur
edatwor
ksi
ncet
heyst
resst
hemsel
vest
oext
remes.
• Lit
tl
esecur
it
yforpay,thusi
fther
eisnoproducti
on,t
herewil
lbenopay.
Someti
mest hemachinemightbreakorawor kermightbeinj
uredand
thi
smightmeannopay.
• Itencourages wor
ker
sto cutcor
ner
s and t
hisr
educes qual
it
y on
product
s.
Per
for
manceRel
atedPay

• I
tiswher
ebyempl
oyeesar
epai
daccor
dingt
othei
rper
for
mance.
Advant
agesofPer
for
manceRel
atedPay

• I
tmot
ivat
est
heempl
oyees.
• I
tincr
easescommi
tmentofempl
oyeest
otheor
gani
zat
ion.
• I
tdevel
opsaper
for
mancecul
tur
e.
• I
tcanbeusedt
orecr
uitandr
etai
nhi
ghqual
it
y.
Di
sadvant
agesofPer
for
manceRel
atedPay

• Moneyi
snott
heonl
ymot
ivat
or.
• At
tent
ionmaybef
ocusedonvol
umesandspeed.
 • I
tmayr
esul
tinhi
gherl
evel
sofpaydi
ff
erences.
Sal
ary

• I
tisanannuali
ncomeusual
lypai
donamont
hlybasi
s.
• I
tispai
dtopr
ofessi
onalandmanagementst
aff
.
• Thesal
aryi
sfi
xedeachyearandi
snotdependentont
imeoruni
t.
• The salar
yleveli
s det
ermi
ned by t
he st
atus oft
he posti
n an
organi
zati
on.
Advant
agesofSal
ary

• Secur
it
yofi
ncome.
• Gi
vesst
atuscompar
edt
opi
eceandt
imer
ate.
• Ai
dsi
ncost
ing,
thati
s,sal
aryi
snotvar
iabl
e.
• Sui
tabl
ewhenout
puti
snotmeasur
ed.
Di
sadvant
agesofSal
ary

• I
ncomei
snotr
elat
edt
otheout
put
.
• Mayl
eadt
ocompl
acencyoft
hewor
ker
.
• Regul
arappr
aisal
s maybe needed t
o assess whet
heran i
ndi
vidual
shoul
dear
nhigher
.
Measur
edDayWor
k

• Theideaofmeasur
ingdaywor
kpr
ovi
desanswer
stot
hepr
obl
emsof
pi
ecerat
eandt
imerate.
• I
nst
eadofworkersr
ecei
vingavari
abl
eextr
aamountofpaydependi
ngon
t
hei
routput
,theyarepai
daf ixedamountasl
ongasaf i
xedoutputi
s
mai
ntai
ned.
Ot
herFi
nanci
alBenef
it
s

• Commi
ssi
on–paymentf
orachi
evi
ngat
arget
.
• Pr
ofi
tshar
ing.
• Companycar
s.
• Pr
ivat
eheal
thi
nsur
ance.
• Subsi
dizedmeal
s.
 • Lowi
nter
estr
ates.
• Housi
ngal
lowances.
Non-
Financi
alBenef
it
s

• Thesecannoteasi
lybeconvertedi
ntocashandtheyincl
udedel
egati
on,
managementbyobj ect
ives,workgr
oups,jobdesi
gn,jobsi
mpli
ficat
ion
andspeci
fi
cati
on.
JobDesi
gn

• Ref
erstotheappli
cat
ionofmot i
vat
ionalt
heori
estot
hest
ruct
ureofwor
k
i
nordertoenhancesati
sfact
ionandproduct
ivi
ty.
• Usuall
ywell
-desi
gnedjobsof f
ersomevariety,pr
ovidesomedegr eeof
aut
onomy,enhance team wor k,and ut
ili
ze skil
ls and abi
li
ti
es of
employeest
othei
rful
lpotent
ial.
•
Thef
oll
owi
ngar
est
rat
egi
esi
ndesi
gni
ngaj
ob:

JobEnl
argement(
Hor
izont
alWor
kLoadi
ng)

• Iti
ncludescombi
ningser
iesoft
asksint
oanewbr
oaderj
obt
hatgi
vesa
chal
lengeandvar
ietyt
otheempl
oyees.
• I
tisanatt
emptmadet obroadenthetaskswhi
char
eunder
takenor
i
ncr
easi
ngl
oadoft
asksonexist
ingwor
kers.
• Iti
nvol
vesgi
vinganempl
oyeemoreworktodoofasimi
larnat
ure,f
or
exampl
e,i
nst
eadofanemployeeput
ti
ngwheelsont
oabi
cycleonl
y,he
maybeall
owedtocompl
etet
hewholebi
cycl
e.
Advant
agesofJobEnl
argement

• I
tpr
event
sbor
edom wi
thoner
epet
it
ivet
ask.
• Encour
agesempl oyeesat
isf
act
ioni
nthei
rwor
kast
heyar
ecompl
eti
ng
thewhol
eprocess.
• I
tismor
eef
fi
cienti
fwor
ker
sar
eor
gani
zedi
ntogr
oups.
Di
sadvant
agesofJobEnl
argement

• I
tissi
mpl
ygi
vingawor
kermor
eoft
hesamej
ob.
• I
tr educeseff
ici
encysi
ncet
hewor
keri
stocompl
etet
hewhol
etask
(
increasedwork)
.
 • I
tover
-bur
denst
hewor
ker
.
JobEnr
ichment(
Ver
ti
calWor
kLoadi
ng)

• I
tcamef
rom Her
zber
g’smot
ivat
ionalf
act
or(
advancement
).
• I
tatt
emptst
ogiveemployeesr
esponsi
bil
it
ybyver
ti
cal
lyext
endi
ngt
hei
r
r
olei
nthepr
oduct
ionpr
ocess.
• I
tinvol
vespr
omot
ions.
• I
tgivesemployeesr esponsi
bil
it
iesforpl
anningtasks,qual
it
ycont
rol
,
wor
ksupervi
sion,or
deringmateri
alsandmaint
enance.
• Inot
herwords,wor
ker
swillbeper
for
mi ngwor
kwhi
chwassupposedt
o
beperf
ormedbyli
nemanagers/
super
visor
s.
• Some degr
ee ofaut
hor
it
y and deci
sion maki
ng i
s del
egat
ed t
othe
empl
oyees.
• Somethi
ngwhichwasdonebysomeonehi
gheront
hehi
erar
chywi
llbe
donebysomeoneatl
owerl
evel
s.
Advant
agesofJobEnr
ichment

• Thewor
ker
sfeel
aspar
toft
heor
gani
zat
ionandt
hei
ref
for
tisr
ewar
ded.
• Empl
oyeeswillal
sobepr ovi
dedwi
thvar
iedt
askswhi
chmaypossi
bly
l
eadt
of ut
urepromot
ions.
• I
tgi
vesempl
oyeesachal
lenget
odevel
opt
hei
runusedski
ll
.
• I
treducest
hel
evelofl
abourt
urnover
.
Di
sadvant
agesofJobEnr
ichment

• Somewor
ker
smayf
eelt
hatt
heyar
enotabl
etodoext
rat
asks.
• Somewor
ker
smi
ghtdemandmor
ewagesf
ori
ncr
easedwor
k.
• Itmaybeasour
ceofdemot
ivat
ioni
fchal
lengi
ngt
asksar
egi
vent
o
empl
oyees.
• I
tcanr
esul
tinst
resst
oempl
oyees.
JobRot
ati
on

• Iti
sthesyst
ematicandplannedmovementofempl
oyeesf
rom onej
obt
o
anothert
oprovi
dethem wit
hvari
ety.
• Empl
oyeesswi
tchf
rom onej
obt
oanot
herf
rom t
imet
oti
me,
forexampl
e,
 f
rom humanr
esour
cedepar
tmentt
omar
ket
ingdepar
tment
.
Advant
agesofJobRot
ati
on

• Reducesbor
edom.
• Enabl
esski
ll
sandexper
iencet
obegai
ned.
• I
tispar
toft
het
rai
ning.
• Incaseofemergency,ifoneisabsent
,anot
herempl
oyeef
rom anot
her
depar
tmentcancoverfortheempl
oyee.
Di
sadvant
agesofJobRot
ati
on

• Gai
nsinproduct
ivi
tymaybeoffsetbyf
alli
nout
putaswor
ker
slear
nnew
j
obsandtaketi
met oset
tl
ein.
• Mot
ivat
ionisnotguar
ant
eedi
ftheempl
oyeei
sswi
tchedf
rom onebor
ing
j
obtoanother
.
• Somewor
ker
sdonotl
i
ke.
ManagementbyObj
ect
ives

• Devel
opedbyDr
unkerFur
therr
efi
nedbyOr
dioneandMcGr
egor
.
• I
tisamanagementtechniquewhi
chi
ncl
udesset
ti
ngoutst
rat
egi
cpl
an,
i
mplement
ati
onandevaluati
on.
N.
B.:Theobj
ect
iveswhi
char
esetmustbesmar
t.

S - Specifi
c
M - Reali
stic
A - Achievable/
Attai
nabl
e
R - Reali
stic
T - Team Specifi
c

Advant
agesofManagementbyObj
ect
ives

• Eachmanagerhasacl
earvi
sionoft
hevi
talar
easofwor
kandst
andar
ds
requi
red.
• I
ndi
vidual
swi
ll
beawar
eoft
heor
gani
sat
ion’
sgoal
s.
• Itwi
llbeeasytoassessst
affper
for
manceandt
hear
easwhi
chneedt
o
beimproved.
• Gr
eat
erpar
ti
cipat
ioni
mpr
ovesempl
oyeemor
alsandcommuni
cat
ion.
 • Manager
shavepowert
oachi
ever
esul
tswhi
char
eameansofensur
ing
gr
owthandprof
it
s.
• I
tcanbeusedt
omot
ivat
ewor
ker
s.
Di
sadvant
agesofManagementbyObj
ect
ives

• I
ttakest
imet
obeef
fect
ive.
• I
tcanl
eadt
omor
epaperwor
kthanact
ualact
ion.
• Wor
ker
smaybef
rust
rat
edi
funat
tai
nabl
est
andar
dsar
eset
.
• Someempl
oyeesmaynotwantt
obegi
venr
esponsi
bil
it
y.
Qual
it
yCi
rcl
es

• Aqualit
ycir
clei
savol unt
arygroupofemployeesofanor gani
zati
onfrom
thesamewor karearangingbetween6-
8peopl ewhodi scussandt r
yt o
solveprobl
emsrelat
ingtot hei
rwork,forexample,qualit
y,product
ivi
ty
i
ssues.
• Theymayagr
eet
omeetweekl
y.
• I
tisanexampl
eofani
nfor
malgr
oup.
Feat
uresofQual
it
yCi
rcl
es

• TheQual
it
yCi
rcl
esi
smadeupofvol
unt
arymember
shi
p.
• I
timpl
ement
sandmoni
tor
ssol
uti
onst
hathavebeenagr
eed.
• I
tpr
esent
sit
sfi
ndi
ngst
othemanagement
.
• Meet
ingsar
eusual
lyshor
tbutf
requent
.
• Af
aci
li
tat
ori
sther
etoassi
stt
heQual
it
yCi
rcl
es.
Advant
agesofQual
it
yCi
rcl
es

• Gr
eat
erawar
enessofshopf
loorpr
obl
ems.
• Jobenr
ichment
.
• I
mpr
ovedmot
ivat
ionandmor
ale.
• I
mpr
ovedqual
it
y.
• I
ncr
easedpr
oduct
ivi
ty.
• I
tal
lowspar
ti
cipat
ionofal
lst
aff(
Her
zber
g).
• Cont
ri
but
etot
hemi
nimi
zat
ionofcost
sofpr
oduct
ion.
Di
sadvant
agesofQual
it
yCi
rcl
es

• I
tist
imeconsumi
ngasar
esul
tofdi
scussi
ons.
• Quali
tyCi r
clesmaybeexpensi
vet orunastheymayincr
easet
hecosts
t
ot heorganizat
ion.Thi
smeansthatQual
it
yCircl
esneedt
obemoti
vated
fi
nancial
ly.
• Itr
equi
ressomeresour
ces.Forittocontinuetoexist
,themanagermust
suppl
ygroupmemberswithnecessaryresources.
• Qual
it
ycirclesmaybeasour
ceofdemot
ivat
iont
owor
ker
swhosei
deas
ar
eneglected.
Aut
onomyGr
oupWor
king(
Team Wor
king)

• Thewor
daut
onomymeanssel
f-
det
ermi
nat
ion,
orsi
mpl
yindependent
.
• I
tmeansthatanexper
iencedgroupofwor
ker
sisgi
vengr
eat
erdi
scr
eti
on
i
npl
anningandmakingofdecisions.
• Usual
lymanagementset
sat askbuthow t
hatwor
kissupposedt
obe
donei
sdeci
dedbytheworker
s.
• Tobemor eeffect
ive,thi
smet hodr equi
resanexperi
encedworkforce
who mightbe wi l
ling totake responsi
bil
it
y and manager
s who use
democr
atictypeofleadershi
p.
• A gr
ouport eam ofpeopl
edeci
desbetweenthem how wor
kist
obe
di
str
ibut
edandhowt osol
vepr
obl
emsthatari
se.
Advant
agesofAut
onomyGr
oupWor
king

• I
mpr
ovescommuni
cat
ionbet
weenmanager
sandt
heempl
oyees.
• Pr
oduct
ivi
tyi
ncr
easessust
ainabi
li
ty.
• Labourt
urnoverr
educed.
• Worker
swilldevel
oprelat
ionshi
pswi
thcol
leaguesandt
eam spi
ri
twhi
ch
mayimprovemot i
vat
ion.
• Flexi
bil
it
ymayr esul
t.Forexample,
team member
smi
ghtbemor
ewi
ll
ing
tocoverforanabsentcoll
eague.
• Qui
ckerdeci
sionmaki
ngandgener
ati
onofmor
eideas.
Di
sadvant
agesofAut
onomyGr
oupWor
king

• Conf
li
ct bet
ween t
eam member
s and manager
s may r
esent t
he
 r
esponsi
bil
it
ydel
egat
edt
oteams.
• I
tresul
tsi
nlossofspeci
ali
zat
ionamongwor
ker
s.
• Toomuchemphasi soni ndi
vidual
ism,f
orexample,teamsmayf ailt
o
del
iverr
esul
tsi
ftheemphasisofthecompanyi
splacedonindi
viduals.
Wor
ker
s’I
nvol
vementandPar
ti
cipat
ion

• Thi
smeansi
ncl
usi
onofempl
oyeesi
nthedeci
sionmaki
ngpr
ocess.
• For
msofwor
ker
s’par
ti
cipat
ioni
ncl
ude:
• Worker di
rect
ors – Empl
oyee r
epr
esent
ati
ves on t
he boar
d of
di
rect
ors.
• Workercouncil–Employeer
epresent
ati
vesont
hecounci
ltodi
scuss
i
ssuesrelat
ingdir
ect
lytoempl
oyees.
• Consul
tat
ivecommit
tees– Employeer
epr
esent
ati
vesconsul
tedon
i
ssuessuchasheal
thandsafet
y.
• Qual
it
yci
rcl
es.
• Team br
ief
ing.
• Wor
ker
s’commi
tt
ees.
• Empl
oyeeshar
eowner
shi
ppl
ans(
ESOP)
Advant
agesofWor
ker
s’I
nvol
vementandPar
ti
cipat
ion

• Ext
ensi
onofdemocr
acyi
ntot
hewor
kpl
ace.
• I
ncr
easedsat
isf
act
ionandper
sonaldevel
opment
.
• I
ncr
easedmot
ivat
ionandi
ncr
easedcommi
tment
.
• I
mpr
ovedi
ndust
ri
alr
elat
ions.
• Ut
il
izest
heknowl
edgeandexper
ienceofwor
ker
s.
• Devel
opmentofconsensus.
• I
mpr
ovedi
nfor
mat
ionf
low.
Di
sadvant
agesofWor
ker
s’I
nvol
vementandPar
ti
cipat
ion

• Ti
meconsumi
ng.
• Wor
ker
slackt
echni
calknowl
edge.
• Empl
oyeest
akeashor
t-
ter
m vi
ew.
 • Conf
li
ctsofi
nter
est
s.
• Deci
sionsshoul
dbemadebyr
iskt
aker
sandt
heexper
tst
owhom
aut
horit
yisdel
egat
ed.
• I
frepr
esent
ati
onsar
evi
auni
ons,wor
ker
swhoar
enotmember
swi
ll
l
oseout.
Tr
aini
ng

• I
tistheacquisi
ti
onofskill
s,knowledgeandcompet
encesasar
esul
tof
t
eaching.I
tenhancescooperat
ion.
• Itis a process wher
eby i
ndi
vidual
s acqui
rej
ob r
elat
ed ski
ll
s and
knowledge.
Advant
agesofTr
aini
ng

• Hi
ghqual
it
y.
• Bet
terpr
oduct
ivi
ty.
• Mor
efl
exi
blet
hroughbet
terski
ll
s.
• Easi
ert
oimpl
ementchangesi
nbusi
ness.
Tr
aini
ngLi
nkst
oMot
ivat
ion

Assumi
ngt
rai
ningi
sef
fect
ivet
hen:

• Empl
oyeesf
eelmor
eloyalt
otheor
gani
zat
ion.
• I
tshowst
hatt
hebusi
nessi
staki
ngani
nter
esti
nit
swor
ker
s.
• Empl
oyeesbenef
itf
rom bet
terpr
omot
ionoppor
tuni
ti
es.
• The employee mi
ghtbe abl
eto pr
oduce mor
e out
putwhi
ch mi
ght
i
ncreasehis/
herwages.
• I
tisanoppor
tuni
tyt
odevel
opnewski
ll
sandknowl
edge.
However
,tr
aini
ngmi
ghtmeanmor
ecost
stot
hebusi
ness.

Ot
herel
ement
sincl
ude:

• Del
egat
ion.
• Cer
ti
fi
cat
eofappr
eci
ati
on.
• Jobsi
mpl
if
icat
ion.
• Longser
vicecer
ti
fi
cat
e.
I
MPACTOFI
CTONMOTI
VATI
ON

• Employeesusi
ngtechnol
ogyi
nthei
rli
neofworkfeelmoresuccessf
ul,
getmoremot i
vat
edtodoworkandhavei
ncreasedsel
f-
conf
idenceand
sel
f-
esteem.

• Product
ionofeffi
cient
lycomplet
edt asks,corr
ect
lypr
esent
edthr
ough
theaidofcomput ersmot i
vat
esthoseempl oyeeswhofindpr
oduci
ng
suchtasksmanual
lydiff
icul
t.

• Employeesfi
ndworki
nginat echnol
ogy-
enhancedenvi
ronmentmor
e
st
imulati
ngandempl
oyee-
cent
eredthaninatr
adit
ional
envi
ronment
.

• Empl oyees ar
e gener
all
y mor
e‘ on task’and expr
ess more posi
ti
ve
feel
ingswhent heyusecomputer
st hanwhent heyarerequi
redtodoit
manual l
y.

• Laptops,pal
mtops,smart
phonesandotherpor
tabl
edevi
cesinvol
vedin
executi
onoftasksmoti
vateemployeest
oworkl
ongerandhar
derwithan
i
ncreasedpri
deinthei
rwork.

• Regularuse ofICT across t

he workpl
ace can i
ncr
ease empl
oyee
conf
idenceandmoti
vat
ioninworki
ng.
Chapt
er7

QUESTI
ONS:MANAGEMENT

• Def
inet
hef
oll
owi
ngt
erms:
• Management.
[2]
• Spanofcont
rol
.
[
2]
• Funct
ionalst
ruct
ure.
[
2]
• Mat
ri
xst
ruct
ure.
[
2]
• Whatf
actor
sinf
luencet
hechoi
ceoft
hespanofcont
rol
?
[
6]
• Whati
sthenar
rowofspanofcont
rol?
[
2]
• Dist
inguish a wi
de and nar
row span ofcont
rolt
oaf
ir
m i
nthe
manuf actur
ing [4]
sect
or.
• How usef
ulisawi
despanofcont
rolt
oaf
ir
mint
hemanuf
act
uri
ng
sect
or? [
4]
• Expl
ainwhyi
tisf
avor
abl
eforempl
oyeest
owor
kinor
gani
zat
ionswi
tha
wide [4]
 spanofcont
rol
.
• Underwhatci
rcumst
ancesmi
ghtaf
ir
m adoptawi
despanofcont
rol
?
[
4]
• Di
sti
ngui
shaspanofcont
rolandchai
nofcommand.
[
4]
• Whati
smeantbyt
hef
oll
owi
ngt
erms:
• Espr
itdecor
ps.
[3]
• St
abi
li
tyoft
enur
e.
[
3]
• Expl
ainanythr
eel
evel
s/t
ypesofaut
hor
it
y.
[6]
• Di
ff
erent
iat
eresponsi
bil
it
yandaut
hor
it
y.
[
4]
• Def
inet
hef
oll
owi
ngt
erms:
• Li
neaut
hori
ty.
[
2]
• St
affaut
hor
it
y.
[
2]
• Expl
aint
heter
mlabourt
urnover
.
[
2]
• Def
inet
heter
m del
egat
ion.
[
2]
• Whydomanager
sdel
egat
ewor
ktot
hei
rsubor
dinat
e.
[
4]
• Expl
ain why manager
sfi
nd i
tdi
ff
icul
tto del
egat
e wor
ktot
hei
r
subor
dinat
e. [
6]
• Whati
smeantbyt
het
erm account
abi
li
ty?
[
2]
• Howusefuli
sspeci
ali
zat
iont
oaf
ir
mint
hecl
othi
ngi
ndust
ry?
[
6]
• Expl
aint
heter
m di
visi
onofl
abour
.
[
2]
• Def
inet
hef
oll
owi
ngt
erms:
• Cent
ral
izati
on.
[
2]
• Decent
ral
izat
ion.
[
2]
• Expl
aint
heconceptofmanagementbyobj
ect
ives.
[
4]
• Def
inethet
erm managementbywal
kingar
ound.
[2]
• Whydoesabusi
nesspl
an?
[
2]
• Di
ffer
ent
iat
emanagementbyobj
ect
ivesandmanagementbywal
king
ar
ound. [ 3]
• Expl
ainanythr
eemanager
ial
funct
ions.
[6]
• Wit
hthehel
pofadi
agr
am ofat
ypi
calf
unct
ionalst
ruct
ure,expl
aint
he
f
oll
owi
ng:
• Spanofcont
rol
.
[
3]
• Chai
nofcommand.
[3]
• Howusefuli
scent
ral
izat
iont
oaf
ir
mint
hemanuf
act
uri
ngsect
or?
[
5]
• Whatar
etheadvant
agesanddi
sadvant
agesofdecent
ral
izat
ion?
[
2]
• Explainthecontr
ibut
ionsofMcGr
egor
’st
heor
yXandYt
oZi
mbabwean
[5]
organizati
ons.
• How appli
cabl
ei st
he McGr
egor
’st
heor
yX and Y i
nthe wor
kpl
ace
si
tuat
ion? [
5]
• I
sfunct
ionalst
ruct
ureal
waysgoodst
ruct
ure?
[
6]
• Di
sti
ngui
shaf
unct
ionalandamat
ri
xst
ruct
ure.
[
4]
• I
ll
ust
rat
eadivi
sionalst
ruct
ure.
[
6]
• Whatar
etheadvant
agesanddi
sadvant
agesofamat
ri
xst
ruct
ure?
[
6]
• Usi
ngt
hediagr
am,
expl
aint
hegeogr
aphi
calst
ruct
ure.
[6]
• Eval
uat
et he r
elevance of management t
heor
ies t
o moder
n day
management
. [25]
• Whatar
ethecausesofhi
ghl
abourt
urnover
?
[
12]
• Di
scussthemet
hodswhi
chaf
ir
m mi
ghtempl
oyt
ocur
blabourt
urnover
.
[
10]
• Whatargument
smi ghtther
ebef ort
her
etent
ionoft
hecent
ral
izat
ionof
t
he [12]
market
ingandf
inancefunct
ion?
• Eval
uate the usefulness of decent
ral
izat
ion t
o a f
ir
m i
n t
he
manufact
uringsect
or.[13]
• Di
scussthef
act
orswhi
chi
nfl
uencet
hel
eveloft
hespanofcont
rol
.
[
25]
• Whatar
ethebenef
it
sofpl
anni
ng?
[
10]
• Expl
aint
heconceptofmanagementbyobj
ect
ivesandeval
uat
eit
swor
th.
[
10]
• Expl
aint
hef
act
orswhi
chi
nfl
uencet
hest
ruct
ureoft
heor
gani
zat
ion.
[
10]
• How usef
ulisafunct
ionalor
gani
zat
ionalst
ruct
uret
oamanuf
act
uri
ng
f
ir
m? [
15]
• Di
scusst
hei
nfl
uenceofFayol
’
stheor
ytomoder
ndayor
gani
zat
ion.
[
25]
• How useful ar
e hier
archy or
gani
zat
ional st
ruct
ure t
o Zi
mbabwe
or
gani
zat
ions? [
15]
• Whatar
ethef
eat
uresofbur
eaucr
ati
cor
gani
zat
ions?
[
5]
• Whatappl
icat
iondoyouconsi
derMcGr
egor
’sTheor
yXandYi
nthewor
k
 [
5]
si
tuati
on?
• Di
sti
ngui
shaf
ormalandi
nfor
malst
ruct
ure.
[
4]
• Di
sti
ngui
shat
allandf
latst
ruct
ure.
[
4]
• Whatar
ethef
eat
uresofat
allst
ruct
ure?
[
4]
• Eval
uatetherel
evanceofFredr
ickTayl
or’
ssci
ent
if
icmanagementt
heor
y
to
Zimbabweanorganizat
ions.
[25]
• Expl
aint
heter
m cor
por
atecul
tur
e.
[
4]
• Di
scussthef
act
orswhi
chi
nfl
uencet
hel
evelofspeci
ali
zat
ion.
[
10]
• Di
sti
ngui
shbet
weendi
visi
onofl
abourandspeci
ali
zat
ion.
[
6]
• Eval
uat
ethemethodsmanagementmightconsi
dertoensur
eef
fect
ive
[
12]
communicat
ionwi
thi
nadecentr
ali
zedorgani
zat
ional
.
• Discussthef
actorsthatmi
ghti
nfl
uencet
hedeci
sionwhet
herornott
o
[
10]
decentr
ali
zedecisi
onmakingwit
hinanor
gani
zat
ion.
• Whyisitimport
antf
ormanager
stodi
sti
ngui
shbet
weenaut
hor
it
yand
[12]
r
esponsibi
li
ty?
• Eval
uat
ethei
nfl
uenceofi
nfor
mall
eader
shi
ptoabusi
ness.
[
6]
• Ifahugepr oj
ectissuccessful
,thebusinesswillgrow qui
ckl
y.Suggest
andj
ustif
y[ 10]
anappropri
ateorgani
zat
ionalst
ructur
eifthishappens.
• Def
inedel
ayer
ing.
[
2]
• Wi
tht
heai
dofanor
gani
zat
ionchar
t,expl
aint
hemai
nfeat
uresofa
formal [
10]
organi
zat
ion.
 MANAGEMENT

Managementi
sthear
tofget
ti
ngt
hingsdonet
hroughot
herpeopl
e(Mar
yPar
ker
Fol
let
).

• I
tist
heachi
evementofobj
ect
ivesvi
atheut
il
izat
ionofr
esour
ces.
• I
tistheatt
ainmentoforganizat
ion’
sgoalsi
naneffici
entandeff
ect
ive
mannerbypl
anning,
organi
zing,cont
rol
li
ngor
gani
zat
ionalgoal
s.
• Itcanbeseenasagroupofpeopl
ewhoar eappoi
ntedbyowner
soft
he
businesst
orunt
hebusi
nessonthei
rbehal
f.
Di
fferencesbetweenManager sandLeader shi
p
Manager s(Management ) Leader
s(Leadershi
p)
Druckerdef i
nedmanagementasdoi ng Leader
shipi
sdoingtheri
ghtthings.
t
hingsr i
ght.
Manager s are usuall
y manager st he Leader
sleadpeopleandmot i
vatethem.
work,f orexampl e,fi
nancialmanager
manages t he fi
nancialaccount s and
makesdeci si
onsconcerni
ngt hatfiel
d.
Manager swantresult
s. Leader
sseekachievements.
Manager strybyal lmeanst omi nimize Leader
susuall
yhavepersonalcharisma.
t
akingrisks.
Manager shaveformalauthori
ty. Leader
sseektoachievelongterm visi
on
ofthef
irm

Manager
ialFunct
ions

Or
gani
zing

• Itisamanagementf uncti
onthatisconcernedwithassi
gningoftasks,
groupi
ng tasks toget
her withi
n subsections of the organi
zat
ion,
all
ocat
ingr
esourcestothesesubsect
ions.
• Afor
malstruct
ureisameansofestabl
ishingaut
hor
it
yandr
esponsi
bil
it
y
andofgai
ningtheadvant
agesofspeci
ali
zati
on.
Cont
rol
li
ng

• Itisconcernedwithmonitor
ingact i
vit
ieskeepingtheorgani
zat
ionon
tr
ack so thatitkeeps movi
ng t owards i
ts goal
s,taki
ng appr
opri
ate
corr
ecti
veactionasandwhenr equir
ed.
Leadi
ng

• Itinvolvestheuseofinf
luencet
omot
ivat
eempl
oyeest
oachi
evet
he
organizati
onalgoal
s.
Di
rect
ing

• Suggest
sor
der
s,i
nst
ruct
ions,
super
visi
onoratt
hever
yleastgui
dance.
Pl
anni
ng

• Ist heest
abl
ishi
ng ofobject
ivesand thefor
mulat
ion,eval
uat
ion and
select
ionofpoli
cies,st
rat
egi
es,tact
icsandacti
onrequi
redtoachieve
them.
• Al
lpl
anni
ngr
equi
resf
orecast
s.
I
mpor
tanceofPl
anni
ng

• Ital
lowsmanagerstolookaheadrat
hert
hanbei
ngobsessedwi
tht
he
daytodayr
unningoft
hebusiness.
• Ithel
psmanager
stoi
dent
if
yst
rengt
hsandweaknesses,oppor
tuni
ti
es
andthreat
s.
• I
tpr
ovi
desf
ocusandsenseofdi
rect
ion.
• I
test
abl
ishesacr
it
eri
onbywhi
chper
for
mancei
seval
uat
ed.
• I
tfaci
l
itat
esdel
egat
ion.
• I
treducest
hegapbet
weenper
for
manceandobj
ect
ives.
• Encour
agest
eamwor
k.
• I
tident
if
iesi
nef
fi
cienci
esandunnecessar
ydupl
icat
ionofef
for
ts.
• I
tenablespeoplet
orespondef
fect
ivel
ytoevent
srat
hert
hani
twoul
dbe
wit
houtplanni
ng.
• I
tfor
cesmanager
stober
eal
ist
ici
nter
msofobj
ect
ivesset
.
Li
mit
ati
onsofPl
anni
ng

• Lackofaccur
atei
nfor
mat
ion.I
tisamer
epr
edi
cti
on.
• Ti
meconsumi
ngandexpensi
vepr
ocess.
• I
nfl
exi
bil
it
y.
• I
tmayr
esul
tini
nter
nalr
igi
dnessi
nmanager
ialwor
k.
• Fal
sesenseofsecur
it
y.
• Amanagermayf
eelt
hatonceapl
ani
sfor
mul
ated,i
twi
llbeeasi
ert
o
car
ryout
.
Busi
nessPl
an

• Itis an essent
ialdocumentf
ordescr
ibi
ng ai
ms and obj
ect
ives and
enabl
ingmeasur ementofpr
ogr
esst
owardsachi
evi
ngthem.
• I
tcanbeusedasar
equi
sit
eforseeki
ngf
inancef
rom i
nvest
ors.
• I
tpr
ovi
dest
hemeanst
o:
• Appr
aiset
hepr
esentandf
utur
eoft
hebusi
ness.
• Wor
koutshor
tandl
ongt
erm obj
ect
ives.
• Est
abl
ishaf
ramewor
ktoest
abl
isht
heobj
ect
ives.
• Itcanbeseenasawor kingdocumentthathel
pstheownertomoni
torthe
currentoperat
ions,pl
ant hef
utur
eoft hebusinessandeval
uat
eactions
necessaryforthesuccessofthebusi
ness.
Cont
ent
soft
heBusi
nessPl
an

• Summar
y.
• Adescr
ipt
ionoft
hebusi
ness.
• Thepr
oductorser
vice.
• Themar
ket
.
• Mar
ket
ingpl
an.
• Fi
nanci
ali
nfor
mat
ion.
I
mpor
tanceofBusi
nessPl
an

• Focusesat
tent
iononobj
ect
ivesandr
esul
ts.
• I
treducesuncer
tai
ntyandr
isk.
• I
tpr
ovi
desasenseofdi
rect
ioni
nthebusi
ness.
• Encour
agesi
nnovat
ionandcr
eat
ivi
ty.
• Gui
desdeci
sionmaki
ng.
• Faci
li
tat
escont
rol
.
TypesofBusi
nessPl
ans

1.St
rat
egi
cPl
an

• Deci
ding on t
he obj
ect
ives oft
he organi
zat
ion,changes inthese
obj
ecti
ves,t
heresour
cesusedtoatt
ainthem andpoli
ciesthatar
et o
 gover
ntheacqui
sit
ionuseanddi
sposi
ti
onoft
her
esour
ce.
Advant
agesofSt
rat
egi
cPl
an

• I
tlaysdownmaj
orgoal
sandpol
ici
esoft
heor
gani
zat
ion.
• I
tpr
ovi
desl
ong-
ter
m vi
ews.
• I
ttakesamacr
ovi
ewoft
heor
gani
zat
ion.
• I
tpr
ovi
desdi
rect
ionf
ort
hegr
owt
hoft
heent
erpr
ise.
2.Tact
icalPl
an

• Ensur
ingt
hatr
esourcesar
eobt
ainedandusedef f
ectivel
yandef
fi
cient
ly
i
ntheaccompl
ishmentoft
heor
ganizat
ionalobj
ect
ives.
Advant
agesofTact
icalPl
an

• Helpstoi
mplementst
rat
egi
cpl
ansbycoor
dinat
ingt
hewor
kofdi
ff
erent
depart
ments.
• Assi
sts when maki
ng short-
ter
m moves and maneuver
s wi
thi
nthe
br
oaderstr
ategi
cexi
sti
ngplans.
3.Oper
ati
onalPl
an

• Ensur
ingt
hatspeci
fi
ctasksar
ecar
ri
edoutef
fect
ivel
yandef
fi
cient
ly.
Advant
agesofOper
ati
onalPl
an

• Speci
fi
canddet
ail
ed.
• Theypr
ovi
def
orm andcont
entt
olong-
ter
m pl
ans.
• Hel
psi
nmaxi
mizi
ngef
fi
ciencyi
nthedayt
odayoper
ati
ons.
• I
tensur
esuni
for
mit
yofact
ion.
ManagementTheor
ies

1.Sci
ent
if
icManagementTheor
y–F.
W.Tayl
or

• Fr
edri
ckdevel
opedhist
heor
yofscient
if
icmanagementashewor
kedhi
s
wayupfr
om alabor
ertoamanagerinUSASteelwor
k.
I
mpl
icat
ionsofTayl
or’
sTheor
y

• Mani sar ati

onaleconomicalanimal
,‘economi
cman’concer
nedwit
h
maximizi
nghiseconomi cgain.Thefi
rm mustgivet
heemployeemor
e
paysothattheoutputcani
ncrease.
 • Sel
ect
ionoft
hebestper
sonf
ort
hej
ob(
someonewi
thski
ll
sorchar
act
er)
.
• Wor
ker
sshouldbegivenappropr
iat
etr
aini
ngandt
ool
ssot
hatt
heycan
wor
kasef
fi
cientaspossi
ble.
• Wor ker
sdonotnatural
l
yenj
oywor kandtheyneedcl
osesuper
visi
onand
control
.Wor ker
sshouldbeencouragedtowor khar
derandmaxi mi
ze
producti
vit
y.
• Divide wor
k between managers and wor
kers.Managers appl
yt o
scient
if
icmanagementpr
inci
plesi
nplanni
ngandsuper
visi
ngthework.
• Amanager
’sjobi
stotel
lempl
oyeeswhatt
odoandt
hewor
ker
s’wor
kis
t
odowhattheyar
etol
d.
Advant
agesofTayl
or’
sTheor
y

• Divi
sion ofworkthus speci
ali
zati
on wi
llincr
ease pr
oduct
ivi
ty and
i
ncreasequali
tysi
nceeachwor kerwil
lbedoingwhatsheknowsbest
andhaveskil
lsi
n.
• Fai
rnessinpaysi
nceitsuppor
tst
heuseofpiecer
atesyst
em t
husi
fa
workerpr
oducesmor
eunitshe/
shewi
llbegi
venmor
epay.
• Moti
vat
esworker
st oworkhard(piecer
atesyst
em)
.Thusi
fawor
ker
pr
oducesmor
e,product
ivi
tyi
ncr
eases.
• Emphasi
sisonmeasur
ingwhatenabl
esi
mpr
ovement
.
• Leadst
oeffi
cientproducti
onmet hodssi
ncethemanagersandworker
s
wil
lbet
rai
nedsot heywilli
ntr
oducemoreideasandpr
oducti
onmet
hods.
Di
sadvant
agesofTayl
or’
sTheor
y

• Noteveryoneismot i
vated bymoney,t hatis,Tayl
orover l
ooked t
hat
workersworkfordi
ff
erentreasons.Accor
dingtoHerzberg,non-
fi
nancial
motivat
ors al
ways motivat
e,f orexample,job enl
argementand j ob
enr
ichment.
• Itignores the exi
stence of groups and teams.Because of t
hat
i
ndividual
ism mi
ghtreducet heproduct
ivi
tyofthefi
rm si
nceteamwork
producesmor eproductssi
ncet heysupporteachotherandcanshare
i
deas.
• I
tgivesnoroom f
orindi
vidualpref
erencesandi
nit
iat
ive.Becauseoft
hat
managementmightnotbeawar eofsomegoodideasf r
om subordi
nat
es.
• Pi
ece r
ate syst
em i
s appr
opr
iat
e wher
e out
puti
s st
andar
dized and
measur
abl
e.
 • Worker
sar
egivenbor
ingr
epet
it
ivet
askst
ocar
ryoutandar
etr
eat
edl
ike
humanmachi
nes.
• I
gnor
est
hef
actt
hatwor
ker
shavesoci
alneeds.
2.McGr
egor
’sTheor
yXandY

• Inthehumansideofenterpr
ise,Dougl
asMcGregorcontrastedtwoset
s
ofassumpt
ionsaboutworker
s’att
it
udetowor
kandr esponsibil
it
y.
• Theor
yXdepi
ctst
heeconomi
cmanchar
act
eri
sti
csofTayl
or’
stheor
y.
• Thetheor
yXi sther
eforear
eluct
antwor
kerwhohast
obecoer
cedand
gi
venextr
insi
crewards.
• Intheor
yY,t heworkerpref
ersaut
onomy,r
esponsi
bil
it
yandgai
nsa
senseofachi
evementf
rom work.
Accept
anceoft
henegat
ivet
heor
yXvi
ewsr
esul
tsi
n:

• Aut
ocr
ati
cleader
shi
pst
yle.
• Tr
adi
ti
onalor
gani
zat
ionalst
ruct
ure.
• Cent
ral
izat
ionofdeci
sionmaki
ng.
• Sci
ent
if
icmanagement(
Tayl
or)
.
• Ext
ri
nsi
cfact
or;payandpuni
shment
.
Accept
anceoft
heposi
ti
vet
heor
yYvi
ewsr
esul
tsi
n:

• Fr
eer
eignst
yleofl
eader
shi
p(democr
ati
c).
• Mor
efl
exi
blest
ruct
ures.
• Asear
chofappr
opr
iat
ewaysofmot
ivat
ingt
hewor
ker
.
• Decent
ral
izat
ionofdeci
sionmaki
ng.
• Ast
ressofi
ntr
insi
cfact
orst
othewor
kit
sel
f.
Theor yXmanagerassumes TheoryYmanagerassumes
People disli
ke wor
k and wi llseek to Peopleenjoywork.
avoidit.
Wor kersareunambiti
ous,i r
responsi
ble, Peopl
eseekresponsi
bil
it
y.
l
azyandnott obetr
usted.
Wor kershavetobecontrol
led. Theydonotwishtobecontrol
led.
Such peopl e have security as their Workersdesi
ret
osatisf
ysocialandsel
f-
greatestneed. act
uali
zati
onneeds.
3.El
tonMayo:HumanRel
ati
onsTheor
y

• Elt
onMayobel i
evedthatwor
kersarenotj
ustconcer
nedwi
thmoneybut
couldbemotivat
edbyhavingthei
rsoci
alneedsmetatwor
k(somet
hing
thatTayl
ori
gnored)
.
• Heintr
oducedt hehumanr elati
onsschoolofthoughtwhichf ocusedon
managerstaki
ngmor einterestonthewor ker
s’treat
ingthem aspeople
who have wor t
hwhi
le opinions and reali
zing that workers enj
oy
i
nter
acti
ngwi t
heachother.
• Mayoconduct
edaseriesofexperi
mentsatt
heHawt
hor
nef
act
oryoft
he
west
ernel
ectr
iccompanyinChicago.
• Fr
om hi
sexper
iment
s,heconcl
udedt
hatwor
ker
sar
emot
ivat
edby:
• Bet
tercommuni
cat
ionbet
weenmanager
sandt
hewor
ker
s.
• Wor
kingi
ngr
oups.
• I
nsur
ewor
kisr
epet
it
iveandi
nter
est
ing.
• Tr
aini
nganddevel
opment
.
• Empower
ment
.
• Secur
it
yenhancesper
for
mance.
Cr
it
ici
sm oft
heTheor
y

• Somecr i
ti
csarguethatMayo’
sapproachi
slargel
ysubj
ect
ivebecause
workersareusual
lymanipul
atedt
owor khar
dbymanager s(vi
ewsof
theor
yX).
• Theassumpti
ont
hatt
hemanager
sandwor
ker
sshar
ethesamegoal
sis
unr
eali
sti
c.
• Ot
her
svi
ewedt
het
heor
yasawayofr
educi
nguni
onpower
.
MaxWeber
’sBur
eaucr
ati
cTheor
y

• Max Weber i s a German soci

ologist who pro-f
ounded that an
organi
zati
onconsti
tut
esofanumberofi ndi
vidual
ssucht hatt
hereis
needtoregul
ateandcont
rolt
heact
ivi
ti
es.
• He st
ressed t
he need t
o adher
et othe organi
zati
onalr
ules and
r
egul
ati
onsasasignofaut
hor
it
ywithi
ntheor
ganizat
ion.
Pr
inci
plesofMaxWeber
’sBur
eaucr
ati
cTheor
y
 • Divisionoflabor– I
tisthepi
votaroundwhicht heclassi
caltheor
y
revolves.I
timpli
esthatwor
kmustbedi vided t
o obt
ain aclearcut
speciali
zat
ionwit
haviewt
oimpr
oveperf
ormanceofworkers.
• Depar
tment
alizat
ion– Divi
sionofworkiffol
lowedbyassi
gnmentof
workt
oindi
vidual
sresponsi
blef
ori
tsper
for
mance.
• Coordinat
ion– Theclassi
caltheor
ypoi nt
edthatthedi
visi
onofwor k
shouldbebalancedbyuni
tyofcontr
ol.Ther
eshoul
dbeasinglecent
erof
authori
tyandcontr
oli
ntheorgani
zati
on.
• ScalarandFunct i
onalProcesses–Thesepr ocessesdealwi thver
ti
cal
and hor i
zont
algr owth oft he organizat
ion respect
ively.Scalarchain
referstoaseriesofsuperiorsubordi
nat er
elat
ionshipsfrom thetoptothe
bottom.The f unct
ionalpr ocess is concerned with divisi
on oft he
organizat
ionintospecial
izedpar t
sandsubpar tsandtheirregroupi
ngon
thebasisofsimi l
ari
tyandcompat ibi
li
ty.
• Struct
ur e– I timpli
es the l
ogicalr elati
onship off unct
ions i
n an
organizati
ontoaccompli
shitsobj
ectivesef f
ectivel
y.I
tisthemechanism
forintroduci
nglogi
calandconsistentr elat
ionshipsamongt hediverse
functi
on.
• SpanofCont rol–Thi simpli
esanumberofsubordi
natesamanagercan
eff
ecti
velysupervise.Itdet
ermi
nesthelevel
sofauthor
it
yandtheshape
oftheorganizati
on.Theconceptalsodirect
sat
tent
iontothecompl
exit
y
ofint
er-
relat
ionshi
psi nanorgani
zati
on.
TheCl
assi
cal
/Admi
nist
rat
iveTheor
ybyHenr
yFayol

• Fayolemphasi
zedongoalat
tai
nment
.
• I
n hi
s book,he emphasi
zed t
he r
ole oft
he manager(
management
f
unct
ions)as:
• For
ecast
ingandpl
anni
ng.
• Or
gani
zing.
• Commandi
ng.
• Coor
dinat
ing.
• Cont
rol
li
ng.
N.
B. :Befor
ecomi ng up withthepr
inci
pleofmanagement
,hebr
oughtt
he
di
visionofbusi
nessacti
vit
iesint
o:

• Techni
calpr
oduct
ion.
 • Commer
cial
.
• Fi
nanci
al.
• Account
ing.
• Secur
it
y.
• Management
.
Hi
sfour
teenpr
inci
plesofmanagementar
e:

1.Di
visi
onofWor
k

• Hebel
ievedt
hatdi
visi
onofwor
kleadst
oef
fi
ciencyatal
llevel
soft
he
or
gani
zati
on.
• Hequot
eddi
sci
pli
newi
thobedi
ence.
2.Aut
hor
it
yandResponsi
bil
it
y

• Aut
hor
it
ymeanst
her
ightt
oactwher
easr
esponsi
bil
it
yist
hedut
ytoact
.
3.Di
sci
pli
ne

• Hesawdi sci
pli
neasanactofr espectf
oragr
eement
swhi
charedi
rect
ed
atachievi
ngobedience,appl
icati
on,ener
gyandtheout
war
dmar ksof
respect
.
4.Uni
tyofCommand

• Eachemployeemustr ecei
vei
nst
ruct
ionsaboutapar
ti
cul
aroper
ati
on
fr
om asi
nglesuper
ior
.
• Whenanemployeer
epor
tstomoret
hanoneperson,
confl
ictsmayoccur
andconf
usi
onofaut
hori
tymayr
esul
tifaut
hor
it
yisunder
mi ned.
• Indi
sci
pli
neisaj
eopar
dywhi
chr
esul
tsi
ndi
sor
derandi
nst
abi
li
tyi
nthe
organi
zat
ion.
5.Uni
tyofDi
rect
ion

• Necessar
ytoensurethatallt
hepeoplewithi
nt heor
gani
zat
ionwor
k
t
owardstheor
gani
zati
onalgoal
s(samedi
rect
ion)
.
• Thisobject
ionshouldbedi r
ectedbyonl
yonemanagerusi ngonepl
an,
forexample,personneldepar
tmentinanor gani
zati
onshouldnothave
twodirect
orsbecausetheymighthavedi
ff
erenthi
ringpol
ici
es.
6.Subor
dinat
ionoft
heI
ndi
vidualt
otheGener
alI
nter
est
s
 • Thei ndi
vidualint
erestsofemployeesshouldnott akeprecedenceover
theinter
estoft hefir
m( commongoal )henceint
erestsofoneempl oyee
shouldnotpr evai
loverthoseoft
heorganizat
ion.
• Accordingtohi m,ignorance,ambi
ti
on,self
ishness,l
aziness,weakness
andallhumanpassi onsmaycauseor gani
zati
onalint
ereststobelostin
favorofindi
viduali
nterest
s.
7.Cent
ral
izat
ion

• Ref
erstot
heext
enti
nwhi
chdeci
sionmaki
ngaut
hor
it
yisat
tai
nedbyt
he
management
.
• I
tisal
laboutdecr
easi
ngt
her
oleoft
hel
owerl
evel
sindeci
sionmaki
ng.
• Fayolbel
ievedthatmanagementshoul
dret
ainthef
inalr
esponsi
bil
it
ybut
needtodel egat
eenought othesubordi
natesinordertodot hei
rjob
proper
ly.
• However
,thepr
obl
em i
stof
indt
hecr
uci
alamountofcent
ral
izat
ionat
eachl
evel
.
8.Scal
arChai
n/Or
ganogr
am

• Ahi
erar
chyi
snecessar
yforauni
tofdi
rect
ion.
• Aut
hori
tyinthe organi
zat
ion runs i
n orderofr ank f
rom the t
op
managementl
evelt
otheper
ipher
y( l
owerl
evels)oft
heent
erpr
ise.
9.AFai
rSyst
em ofRemuner
ati
on

• Compensat
ionf
orworkdoneshouldbefai
rtobot
htheempl
oyerandt
he
empl
oyeeandshoul
dprovi
desati
sfact
iont
obothpar
ti
es.
• Shoul
dencour
agekeennessanddi
scour
ageoverpayment
.
• Under
paymentmayresulti
nlabourt
urnoverwhi
lstover
paymentmi
ght
negat
ivel
yaf
fectt
hel
iqui
dit
yposi
ti
onofthefi
rm.
10.Or
der

• Itistheplaci
ngoft
her
ightmaninther
ightpl
ace.Mater
ial
s,peopl
eand
allresour
cesshoul
dbeatt her
ightpl
aceattherightti
meandunder
control
.
• Accor
dingt
ohi
m,“
ther
eisapl
acef
orever
ythi
ngandever
ythi
ngi
nit
s
pl
ace”
.
11.Equi
ty
 • Accountt
ohavemanagersbothfr
iendlyandfai
rtot
hei
rsubor
dinat
e.I
t
ent
ail
sacombinat
ionofj
ust
iceandkindness.
• Thi
senhancesl
oyal
tyoft
hewor
kfor
cet
owar
dsmanagement
.
12.St
abi
li
tyoft
heSt
affTenur
e

• Hearguedthatahighempl
oyeet
urnoveri
snotgoodf
oref
fi
cientr
unni
ng
oft
heorganizat
ion.
• Accor
dingt
ohim,ahightur
noverofst
affwascost
lyt
otheor
gani
zat
ion
andwasbothacauseandeff
ectofmanagement
.
13.I
nit
iat
ive

• Subor
dinat
esshoul
dbegiventhefr
eedom t
oconcei
veandcar
ryoutt
hei
r
pl
anseventhoughsomemistakesmayoccur.
14.Espr
itDeCor
ps

• Hebel
ievedthatt
hereisst
rengt
hinunionandheemphasizedt
heneed
f
ort
eamwor kandtheimpor
tanceofgoodcommuni
cat
ion.
• Accordi
ngtohim,harmonyi sst
rengt
handmanager
sshoul
dhavea
senseofor
gani
zat
ionaluni
ty.
• Tohim,evenasmal lf
actorcanhelpt
odevel
opt
hisspi
ri
t,f
orexample,
useofverbalcommuni cati
oninst
eadoff
ormalwri
tt
encommunicat
ion
wheneverpossi
ble.
KeyCont
ri
but
ions

• Theor
gani
zat
ionalt
heor
yleadst
opr
ofessi
onal
ism i
nfact
ori
es.
• Thet heorysucceededinputti
ngacrosst henoti
onthatmanagement
should belearntasaskill
,forexampl e,onecannotbean eff
ect
ive
accountantwit
houthavi
ngpract
icedaccounti
ng.
• Hegaveguidel
inesthathel
pedtoincreasedproduct
ivi
tyandeff
ici
ency,
f
or example,the importance of disci
pli
ne,team wor k and fair
r
emunerat
ioncannotbeunderest
imat
ed.
• Hi
sadvi ceonst
abi
li
tyofst
afft
enur
eandt
heneedf
oror
deri
sst
il
l
r
elevant
.
Li
mit
ati
ons

• Somecri
ti
csareoft
heviewst hator
gani
zat
ionalt
heoryrecogni
zeda
humanbeingasafi
nanci
al/
economicbei
ngr at
herthanani mport
ant
 f
act
or.
• Someofthepoint
sweregoodf
ort
heorgani
zat
ionduri
ngthater
abutas
theor
gani
zat
iongrew,
someoft
hepoi
ntsmaynolongerberel
evant
.
SpanofCont
rol

• Thi
sisthenumberofpeopl
edi
rect
lyaccount
abl
etoandr
epor
ti
ngt
oa
manager
.
Nar
rowSpanofCont
rol

• Means thatt
her
e are manymid and top l
evelmanager
s who each
super
viseasmal
lnumberofempl
oyeesreport
ingtot
hem.
• Nar
rowspanl
eadst
oat
allor
gani
zat
ionalst
ruct
ure.
Di
agr
am ofNar
rowSpanofCont
rol

Advant
agesofNar
rowSpanofCont
rol

• Iti
seasierforamanagertoprovidegui
dancet
osubor
dinat
esandt
o
super
viseandcont
rolt
hei
ract
ivi
ti
es.
• Iti
seasiert
odevelopgr
oupcohesi
venesswithi
nt hesmall
ergr
oupsof
employeesr
epor
ti
ngtoeachmanagerandensurefast
ercommunicat
ion.
• I
tispossi
blet
ohaveorganizat
ionalunit
swithmor efocusedf
unct
ions
r
athert
hanmanydi
ff
erentf
uncti
onsgr oupedunderonemanager.
• Fastcommuni
cat
ionbet
weensuper
ior
sandsubor
dinat
es.
Di
sadvant
agesofNar
rowSpanofCont
rol

• I
ttendstoincreasethetotalnumberoforgani
zat
ionall
evel
s.Thi
smakes
i
tdiffi
cul
tf ormanager sathi ghlevel
st okeepint ouchwithgr
ound
r
eali
ti
esatoper at
inglevel
s.
• I
tincreasesthetotalnumberofempl
oyeesi
ntheor
gani
zat
ion.Thi
s
i
ncreasescost
softheemployer
s.
• Itcreatespr obl
emsofcoor
dinat
ion bet
ween di
ff
erentmanager
sand
organizat
ionaluni
ts.
• Excessi
vedi
stancebet
weent
hebot
tom andt
het
opoft
heor
gani
zat
ion.
Wi
deSpanofCont
rol

• Meanst hatt
herear
efewermanagersofmi
dandthetoplevelwit
heach
super
visingalar
genumberofemployeest
husmorepeoplerepor
tingt
o
 onemanager
.
• Widespanofcont
rolr
esul
tsi
nfl
ator
gani
zat
ionalst
ruct
urewi
thf
ewer
l
ayers.
Di
agr
am

Advant
agesofWi
deSpanofCont
rol

• Cl
oser
elat
ionshi
psbet
weenwor
ker
sandempl
oyees.
• Cl
osesuper
visi
onofempl
oyeet
asks.
• Gr
eat
ersuper
visor
yat
tent
iont
oempl
oyeesbymanager
s.
• Possi
bil
it
yformor
eupwar
dgr
owt
hforempl
oyees.
• Possi
bil
it
yforgr
eat
ercompl
exi
tyoft
asksf
orempl
oyees.
• Shor
tdeci
sionmaki
ngpr
ocess.
Di
sadvant
agesofWi
deSpanofCont
rol

• Gr
eat
erl
evel
sofmanagementmeangr
eat
eroper
ati
onalcost
s.
• Tal
lor
gani
zat
ionwit
hmanylayer
sofmanagementmeansl
essef
fi
ciency
i
n communicat
ion upwar
ds and less i
nter
est i
n communicat
ion
downwar
ds.
• Lesseni
ngofempl
oyeemor
aleandf
eel
ingofbel
ongi
ng.
• Lowerski
ll
ed,
lessmot
ivat
edempl
oyeesr
equi
remor
esuper
visi
on.
Fact
orswhi
chI
nfl
uencet
heLevelofSpanofCont
rol

• Theexper
ienceandper
sonal
it
yoft
hemanager
.
• Thenat
ureoft
hebusi
ness.
• Theski
ll
sandat
ti
tudeoft
heempl
oyees.
• Highl
y ski
ll
ed,pr
ofessi
onalempl
oyees mi
ghtf
lour
ish i
n a busi
ness
adopt
ingwi
despanofcontrol
.
• Thetradi
ti
onandcultur
eoft
heorgani
zat
ion.Abusi
nesswit
hat
radi
ti
on
ofdemocrati
cmanagementandempower mentofwor
ker
smayoperat
e
widerspanofcont
rol
.
Rel
ati
onshi
pbet
weenSpanofCont
rolandHi
erar
chy

• Theambit
ionofspanofcontrolandchainofcommandr
esul
tsi
na
pat
ter
nofl
evel
sthati
scal
ledahier
archy.
 • Thustheunbrokenl
ineofaut
hor
it
yfr
om t
het
opt
othebot
tom oft
he
organi
zat
ion.
• Att
hetopoft
heorgani
zat
ionalhier
archyar
esi
mil
arr
anki
ngof
fi
cial
sand
att
hebot
tom ar
egener
alworkers.
Cent
ral
izat
ion

• Refer
stoar el
ati
vel
yhi
ghdegreeofconcent
rati
onofdeci
sionmaking
amongveryfartopmanager
sattheheadof f
icesandthebott
om are
gener
alwor
kers.
• There is cent
ral
ized admi
nist
rat
ion, human r
esour
ces, f
inance,
purchasi
nget
c.
• Wit
hcentral
izat
ion,
deci
sionsar
etakenatt
hecent
eroratt
heupperl
evel
oft
heorganizat
ion.
• Thi
sleavesl
it
tl
edi
scr
eti
onandaut
hor
it
yfort
heper
ipher
yorl
owerl
evel
s.
Advant
agesofCent
ral
izat
ion

• Gr
eat
ercont
rol
.
• Economi
esi
nst
aff
ing.
• Easi
ercommuni
cat
ion.
• Economi
esofspeci
ali
zat
ion.
• Economi
esofscal
e.
Di
sadvant
agesofCent
ral
izat
ion

• Excessi
vebur
eaucr
acy.
• Ri
gidi
ty.
• Del
aysi
ndeci
sionmaki
ng.
• Lossofi
nit
iat
ive.
• St
if
ferper
sonaldevel
opment
.
Decent
ral
izat
ion

• The di
sper
salofauthor
it
y ofdeci si
on maki
ng t
othe l
owerl
evel
managementi
ster
medasdecent
ral
ized.
• Meansdi
ff
usi
onofaut
hor
it
y.
• I
scl
osel
yli
nkedt
odel
egat
ion.
 • I
tiswhent
her
eisconsi
der
abl
edel
egat
ionandaut
onomyatl
owerl
evel
s.
Advant
agesofDecent
ral
izat
ion

• Rel
ievingtopmanagersofwor
kover
loadsot
hatt
heyconcent
rat
emor
e
onstrategi
cdeci
sions.
• Qui
ckerandbet
terdeci
sionmaki
ngt
akenatt
hesceneoft
heact
ion.
• Itoffer
st r
aining ofj
uni
ormanager
s and pr
epar
es t
hem f
ormor
e
chal
lengi
ngroles.
• Deci
sionsi
nresponsetomar ketchangesbecomequi
ckerandf
lexi
ble
si
nceheadoff
icewil
lnotbei
nvolvedallt
het
ime.
• I
ncr
easesempl
oyeemot
ivat
iont
hroughpar
ti
cipat
ioni
ndeci
sionmaki
ng.
• Per
sonaldevel
opmenti
spr
omot
ed.
Di
sadvant
agesofCent
ral
izat
ion

• Coor
dinat
ionbyt
opmanager
smaybecomedi
ff
icul
t.
• Lack of contr
ol and ineffecti
ve communi cat
ion may l
ead t
o
i
nconsi
stencesr
elat
ingt
oorganizat
ionalpol
icy.
• Divi
sionsmaypur
suet
hei
rownobj
ect
ivesatt
heexpenseofcooper
ati
ve
goals.
• Lossofsomeeconomi
esofscal
e.
• Devel
opmentofnar
rowdepar
tmentvi
ew.
Fact
orswhi
chI
nfl
uencet
heLevelofCent
ral
izat
ion

1.Cost

• Themorecostl
ytheacti
ontobedecidedont
hemor epr
obabl
e.Iti
sthat
thedeci
sionwil
lbeatthetoplevel
sofmanagementsothegreat
erthe
degr
eeofcentr
ali
zat
ionandvi
ceversa.
2.Desi
ref
orUni
for
m Pol
icy

• Consi
stencyanduni
for
mityisassoci
atedwithcentr
ali
zat
ion,wher
etop
managementdesi
resunif
ormit
y.Iti
slikel
ythatdeci
sionmakingwil
lbe
cent
ral
ized.
3.Si
zeandChar
act
eroft
heOr
gani
zat
ion

• Smallorgani
zati
onstendt ocent
ral
izewhi
lel
argeor
gani
zat
ionsduet
o
thei
rcomplexi
tydecent
ral
ize.
4.Hi
stor
yandCul
tur
eoft
heOr
gani
zat
ion

• Organizat
ionsthatgr
ow int
ernall
yandthehi
stor
yoft
heor
gani
zat
ion
deter
mi nethedegr
eeofcent
ral
izati
on.
5.ManagementPhi
losophy

• Somemanagerspr ef
ertokeepdecisi
onmakingauthor
it
yt othemsel
ves
becauset
heybel
ievethatt
heirsubor
dinat
esar
eincompetent.
6.Geogr
aphi
calLocat
ionoft
heOr
gani
zat
ion

• I
fthebusi
nessdist
ri
but
ionsareindist
antmarkets,t
her
eisat
endency
f
ortheor
gani
zat
iontodecent
ral
izedeci
sionmaki
ng.
7.Communi
cat
ionFr
equencyandFaci
li
tat
es

• Theexistenceofcommuni cat
ionfaci
li
ti
es,f
orexampl
e,I
Tleadst
oa
hi
ghlycentral
izedor
gani
zat
ionsincet
heheadoff
icei
sal
waysi
ncont
ract
wit
hitsbranches.
8.TypeofOr
gani
zat
ion’
sFunct
ions

• Per
sonneland Fi
nance ar
e usual
ly cent
ral
ized f
unct
ions i
n most
compani
es.
St
abi
li
tyofTenur
e(LabourTur
nover
)

• I
tist
hepr
opor
ti
onofst
affl
eavi
ngabusi
nessoveraper
iodoft
ime.
• I
tismeasur
edbyt
hef
ormul
a:

CausesofHi
ghLaborTur
nover

• Rel
ati
vel
ylowpayl
evel
sofwor
ker
sforbet
terpayi
ngj
obs.
• Fewt
rai
ningandpr
omot
ions.
• Poorwor
kingcondi
ti
onsorl
owj
obsat
isf
act
ion,
forexampl
e,bul
lyi
ngand
har
assment.
• Somebusinessesarerel
ati
vel
ypooratsel
ecti
ngandrecrui
tingt
her
ight
candi
dat
esforposts,
wherebyworker
sarei
ll
-sui
tedf
orthei
rjobs.
• Ther
eismor
echancet
hatt
heywi
lll
eaver
elat
ivel
yqui
ckl
y.
• Unf
avor
abl
eleader
shi
pst
yle.
• Lackof.
jobsecur
it
y,f
orexampl
e,cont
ract
s.
 • Poorr
elat
ionshi
ps,
forexampl
e,i
nfor
malgr
oups.
• Poormot
ivat
ion.
Benef
it
sofLabourTur
nover

• Newst
affbr
ingsi
nnewi
deas.
• I
tavoi
dskeepi
ngofst
afft
hatar
eagei
ng.
• Wherebusi
nesspaysl
owwagesorwher econdit
ionsofworkarepoor,i
t
maybemor eprof
it
abl
et ohaveaconsi
stentt
urnoverofst
affr
atherthan
tor
aisewagesorimprovethecondi
ti
onsofwor k,sosomepeoplemust
go.
• I
fbusinessi
sshrinki
nginsize,r
educi
ngt
hesi
zeoft
hewor
kfor
cewi
ll
l
eadtohighl
abourtur
nover
.
Pr
obl
emsofLabourTur
nover

• Lostpr
oduct
ionwhi
lstt
heposti
snotf
il
led.
• Lostpr
oduct
ionwhi
let
rai
ning.
• Costofnewr
ecr
uit
mentandt
rai
ning.
• Tar
nishest
hei
mageoft
hef
ir
m.
• Paymentofbonusest
oot
herempl
oyeeswhi
lstr
epl
acementi
sfound.
• I
ttakesti
mef ornewstaf
ftobecomef
ami
li
arwi
tht
hei
rrol
esandt
heway
i
nwhi cht
hingsaretobedone.
Sol
uti
onst
oHi
ghLabourTur
nover

• I
mpr
ovet
hepr
ocessofempl
oyeesel
ect
ion.
• Ensur
ethatt
heempl
oyeesar
ebei
ngf
ull
yut
il
ized.
• I
mpr
ovewor
kingcondi
ti
ons.
• Pr
omot
inggr
oupmor
aleandcohesi
veness.
• Jobenr
ichment
,enl
argi
ngandr
otat
ion.
• Demonst
rat
ethatpr
omot
ionpr
ospect
sexi
st.
• I
ncr
easer
emuner
ati
on.
Del
egat
ion

• I
tisapr
ocessbywhi
chmanager
ssuchasschoolheads,
transf
erpar
tof
 t
hei
rauthori
tytosubor
dinat
esf
ort
heper
for
manceofcer
tai
ntasksand
r
esponsi
bil
it
ies.
Advant
agesofDel
egat
ion

• Reducesmanagementst
ressandwor
kload.
• Enabl
esseniormanagementt
ofocusonkeyt
asksanddel
egat
eless
i
mportantt
asks.
• Subor
dinat
esar
emot
ivat
edandempower
ed.
• Betterdecisi
ons si
nce empl
oyees ar
e knowl
edgeabl
etot
he use of
resources.
• Goodmet
hodofon-
the-
jobt
rai
ning.
• I
ncr
easedpar
ti
cipat
ionbysubor
dinat
es.
Ef
fect
iveDel
egat
ionCondi
ti
ons

• Selectt
hepersontodel
egatet
oonthebasisofsoundknowl
edgeofthe
staff member in t
erms of thei
r var
ying l
evel
s of competency,
commi t
mentandcapabi
li
ty.
• Thenatureandthescopeofthewor
ktobedelegat
edmustbecl
ear
ly
def
inedandbefort
hebenef
itoft
heor
gani
zat
ionasawhol
e.
• Del
egat
edt
asksmustbecl
ear
lydescr
ibed.
• Theper
sontowhom t
hejobisdelegatedmustbecapabl
eofcar
ryi
ngout
andwil
li
ngt
otaket
heresponsi
bil
ity.
• Some f or
m ofr
epor
ti
ng t
o pr
ovi
de a means ofpr
ogr
ess cont
roli
s
requi
red.
• Rewar
dsuccessf
ulachi
evementofdel
egat
edt
asks.
• Twowaycommuni
cat
ioni
snecessar
y.
Di
sadvant
ages/
Bar
ri
erst
oEf
fect
iveDel
egat
ion

• I
nsecur
it
ywher et
heleaderi
snotreadyt
otakechances(
ri
sks)orf
ear
t
hatsubor
dinat
esmaylethi
m down.
• Lossofpoweri
fthesubor
dinat
esdonotdot
het
askver
ywel
landeven
bett
ert
hanthel
eaderwoul
dhavedonei
t.
• Fai
lur
et oplanahead.Thi
smakesi
tdi
ff
icul
ttodeci
dewhi
cht
askst
o
del
egateandtowhom andwhen.
 • Somemanagerscont i
nuouslymoni
tort
hewor
kofsubor
dinat
esand
hencef
indi
tdi
ff
icul
ttodelegat
e.
• Theat
mospher
eoftheorganizat
ion.Someor
gani
zat
ionsar
edemocr
ati
c
andot
her
sarebur
eaucr
atic.
• Lackoft
rustbet
weenmanager
sandst
aff
.
ReasonswhyManager
sar
eRel
uct
antt
oDel
egat
e

• Fearoft
heunknown.
• Somet
imesmanager
sdonothavedel
egat
ionski
ll
s.
• St
affmanager
sfearempl
oyeesmi
ghtper
for
m bet
tert
hant
hem.
• Somemanager
sfeelbet
terdoi
ngi
tont
hei
rown.
• Shyness.
Responsi
bil
it
y

• Ref
erst
oindi
vidual
s’obl
igat
ionst
ocar
ryoutassi
gneddut
ies.
• Thesear
edut
iesonei
sassi
gnedt
odobyhi
ssuper
ior
s.
• Responsibi
li
ti
esinvolvebei
ngaccountabl
eorbeingrequi
redtojust
if
yan
acti
on,forexampl e,managersresponsi
bleforadepar tmentmaybe
askedtojust
ifypoorperf
ormancetotheboardofdi
rector
s.
Advant
agesofResponsi
bil
it
y

• Itpr
omot
esmot
ivat
ionast
hesubor
dinat
eswi
llneedt
omeett
arget
sor
goal
s.
Account
abi
li
ty

• I
tistheobl
igat
iontocarr
youtresponsibi
li
tyandexerci
seaut
hor
it
yin
t
ermsofper
formancest
andar
dsestabl
ishedbythesuperi
or.
Aut
hor
it
y

• I
tist
her
ightt
oexer
cisepowerort
her
ightt
ocommand.
• Thi
sisthepowermanagementhast
oexer
ciseandmakedeci
sionsi
n
car
ryi
ngoutassi
gnment
s.
• I
notherwords,i
tistheabi
li
tyt
ocarr
youtthetasksf
or,f
orexampl
e,i
t
woul
dnotmakesenseaski nganoff
iceworkert
opaycompanydebts
whenshedoesnothaveaut
hori
tyt
osi
gncheques.
 • Employeesatl
owerl
evelhavel
essr
esponsi
bil
it
yandaut
hor
it
ythant
he
fur
therup.
TypesofAut
hor
it
y

Li
neAut
hor
it
y

• Directauthor
ityinvol
vest her i
ghttogiveor dersand havedeci sions
i
mpl emented.Allsuperi
orshavel i
neauthori
tyovert hesubor di
natesin
theirt
eamsordepar t
ment.Lineauthori
tyi
saf eat
ureofscal archainof
commandwhi chrunsfrom toptobott
om ofanor gani
zation,
forexampl e,
producti
on manager s arel ine managersr esponsiblefor wor k of
producti
on.Theflowoflineauthori
tyi
salwaysdownwar ds.
Advant
agesofLi
neAut
hor
it
y

• I
tiscl
ear
.Ther
eiscl
eardi
visi
onofaut
hor
it
yandr
esponsi
bil
it
y.
• I
tal
lowsf
oruni
tofcommand.
• Ther
eisef
fi
ciencyi
ndeci
sionmaki
ng.
• Ef
fect
ivedi
sci
pli
ne.
Di
sadvant
agesofLi
neAut
hor
it
y

• Manager
sshoul
dbeexper
tsast
heydonotconsul
t.
• Ther
eisnocar
eerdevel
opment
.
• Lackofspeci
ali
zat
ion.
• Cent
ral
izat
ionandsubj
ect
ivecont
rol
.
St
affAut
hor
it
y

• Canbeseenasauxi
li
aryaut
hor
it
yint
hatitdoesnotprovi
det
herightto
command.Staf
faut
horit
yhascomet o mean advi
soryorsupport
ive
aut
hor
it
y.
N.B.
:St
affaut
horit
yofthosei
ndivi
dualswhopr
ovidel
inemanagerswi
thadvi
ce
andser
vicest
affcanof
ferser
vicessuchasl
egal
,fi
nanci
alanal
ysi
s.

Advant
agesofSt
affAut
hor
it
y

• I
deasar
eshar
edsot
hatdeci
sionmaki
ngi
simpr
oved.
• I
tassi
stsmanager
swi
thexper
thel
p.
• Theyassi
sti
npol
icyi
mpl
ement
ati
on,
legalandf
inanci
ali
ssues.
 Di
sadvant
agesofSt
affAut
hor
it
y

• Empl
oyi
ngspeci
ali
zedl
abouri
scost
lyt
oanor
gani
zat
ion.
• I
tcr
eat
esconf
li
ctsassomemanager
sref
uset
otakeadvi
ce.
Li
neAuthor
it
y StaffAuthorit
y
Ri
ghtt
odecideandcommand. Rightt oprovi
deadvi ce,assi st
anceand
i
nf or
mat i
on.
Contri
but edir
ectlytoaccomplishmentof Assistsintheef f
ect i
veaccompl ishment
organizati
onalgoals. oforganizati
onalgoal s.
Relati
velyunlimitedandgeneral. Relati
vely restri
cted t o a par ti
cul
ar
functi
on.
Flowsdownwar dsfrom asuper i
ortoa Mayf l
ow inanydi rectiondependingon
subordinate. theneedofadvi ce.
Possessedbygener ali
sts. Possessedbyspeci al
ists.
Exerci
sescont rol. Investi
gatesandr epor t
s.
Doingf uncti
on. Thinkingfuncti
on.
Makesoper at
ionaldecisi
ons. Providesideasfordeci sions.

Funct
ionalAut
hor
it
y

• Itcanbedefi
nedast her i
ghttogi
veor
der
sinadepart
mentot
hert
han
yourown.Therelat
ionshipari
seswhenaspeci
ali
sti
sall
owedtot
ake
overal
imi
teddefi
nedf unct
ion.

• Thel
inemanager
sdedi
cat
eaut
hor
it
ytoaspeci
ali
stt
ocar
ryoutt
het
ask.

• Alt
hough t hi
scr eatesproblemsi nt er
msofcompl icat
ed rel
ati
onship,
coordinat i
ondiffi
culti
esandconf usionoveraut hor i
ty.Itdoeshavet he
advantageofr eli
evingli
nemanager sofcer tai
nt askandmaki nguseof
specializati
on,forexample,apersonnelmanagerhasf uncti
onalaut
hori
ty
toinstructeveryempl oyeet
osi gntheattendancer egister
.
Dif
ferencesbetweenResponsi
bil
it
yandAut
horit
y
Responsibi
lit
y Authori
ty
Obli
gationtoact
. Dutytoact.

Chai
nofCommand

• Thi
sistheplanthatsat
isf
ieswhoreportt
owhom i
ntheorgani
zation.I
tis
aline of authori
tythrough which or
der
s and responsi
bil
it
ies are
del
egat
ed.
• Itr
efer
stother
elat
ionshi
poft hesuper
ior
sandi
tssubor
dinat
esshown
byli
nesonanor
ganizati
onalchar
t.
 • Theconcepti
ssuppor
tedbyt
hef
oll
owi
ngpr
inci
ples:
• Scalarfactor–Someonei ntheorganizat
ionmighthaveul t
imate
authori
tyandacl earl
ineofauthori
tyshouldbeinexi
stence,foral
l
enterpr
ise/l
inesofaut hor
it
yar eshowni nbrokenli
nesf rom the
toptobot t
om ofanorganizati
onalchar
t.
Pr
obl
emsofaLongChai
nofCommand

• Longchainsofcommandslow downdecisi
onmakingsi
nceitpasses
thr
oughmor epeopleandthecompeti
tor
smi ghtt
akeadvant
ageand
expl
oiti
tsmarketbef
oret
hef
ir
mreact
s.
• Mi
scommuni
cat
ioncanoccursi
ncet
her
ear
emor
emi
ddl
emanager
s.
• I
tal
sor
educest
hecompany’
sabi
li
tyt
oreactandmakedeci
sions.
• Mor
ecost
ssi
ncemor
emoneyi
sneededt
opayt
hemoneymanager
s.
Uni
tyofCommand

• Itstat
esthatemployeesshoul
dr epor
ttoj
ustonemanager.I
nstr
ucti
ons
from two ormor e managers may conf
li
ctwhich may wor
k against
organizat
ional
goal
s.
Speci
ali
zat
ion

• Doingt hejoborwor
kinwhi
chonei
stal
ent
edat
,forexampl
e,l
awyer
s,
engineers.
Advant
agesofSpeci
ali
zat
ion

• Wor
ker
sandf
ir
msbecomeexper
tsi
napar
ti
cul
arj
obort
ask.
• Wor
ker
sacqui
respeci
fi
cski
ll
squi
ckl
y.
• Sur
plusgoodsar
epr
oduced.
• I
mpr
ovest
hequal
it
yofgoodsandser
vices.
• Fir
ms wi l
lbe abl
eto empl
oyand ut
il
ize speci
ali
zed machi
ner
yand
equipment.
Di
sadvant
agesofSpeci
ali
zat
ion

• Aut
omat
ionl
eadst
ounempl
oyment
.
• Leadst
oint
erdependency.
• Resul
tsi
mmobi
li
tyofl
abour
.
 • Leadst
olackofcr
aft
smanshi
p.
• Repet
it
ivet
asksbor
ingt
owor
ker
s.
Di
visi
onofLabour

• I
tmeanswor
ker
sconcent
rat
eupononepar
ti
cul
arj
ob.
• Breakdownofwor kort
radeact
ivi
ti
esi
ntoi
ndi
vidualt
asksorsmal
ltasks
donebydiff
erentpeopl
e.
Advant
agesofDi
visi
onofLabour

• Mor
egoodsar
epr
oducedf
orvar
iousmar
ket
s.
• Lar
gescal
epr
oduct
ionr
esul
ti
ngi
nmor
eempl
oyment
.
• Level
soft
rade.
• Pr
ompt
edt
oint
erdependenceofwor
ker
s.
• Goods are pr
oduced ata f
ast
er r
ate due t
o mechani
zat
ion and
aut
omation.
Di
sadvant
agesofDi
visi
onofLabour

• Leadst
oint
erdependenceofwor
ker
s.
• Goodspr
oducedar
est
andar
dized.
• Tasksbecomer
epet
it
iveandbor
ing.
• Lackofj
obsat
isf
act
ion.
• Unempl
oymentcausedbymechani
zat
ionandaut
omat
ion.
Team Wor
k(Espr
itDeCor
ps)

• I
tinvol
vespl
aci
ngeachmemberofst
affi
ntosmal
lteamsofempl
oyees.
• Anef
fect
ivet
eamwor
kinvol
vesqual
it
yci
rcl
es.
Advant
agesofTeamwor
k

• I
tleadst
owor
ker
slear
ningsever
alski
ll
srat
hert
hanj
ustone.
• I
thel
pscr
eat
eamor
efl
exi
bleandadapt
ivewor
kfor
ce.
• Itmoti
vates,l
eadi
ngtoal owerlabort
urnoversi
ncewor
ker
sinagr
oup
havesecuri
tyandsoci
alneeds.
• Bet
tershar
ingofi
deas.
 • Leadst
ohi
ghqual
it
yint
otalqual
it
ymanagementi
fincor
por
ated.
Di
sadvant
agesofTeamwor
k

• Somewor
ker
smayf
indi
tdi
ff
icul
ttowor
kcl
osel
ywi
thot
her
s.
• Ift
heteam al
lowsastr
onginfor
malleaderwhomaynotconformt
othe
obj
ect
ivesoft
heorgani
zat
ion,
theteam mayworki
nef
fi
cient
ly.
• I
tmi
ghtbet
imeconsumi
ng.
• Conf
li
ctsmayar
ise.
• Bl
amegamemayar
ise.
Or
gani
zat
ionalFunct
ions(
Depar
tment
s)

1.TheMar
ket
ingFunct
ion

• I
tist
hedepar
tmenti
ndi
rectcont
actwi
tht
hebusi
nesscust
omer
s.
• Mar
keti
ngi
sconcer
nedwi
thi
dent
if
yingandr
espondi
ngt
otheneedsof
t
hecust
omers.
• Mar
ket
ingmanager
sar
eresponsi
blef
or:
• Resear
choft
hemar
ket
:
• I
dent
if
yingt
hemar
ketoppor
tuni
ti
es.
• Under
taki
ngdeskandf
iel
dresear
ch.
• Or
gani
zedat
aoff
iel
dresear
ch.
• New product devel
opment (
in coor
dinat
ion wi
th pr
oduct
ion
depar
tment
)whi
chinvolves:
• Devel
opi
ngnewpr
oduct
.
• Deci
sionmaki
ngt
othecont
inuat
ionorabor
ti
onofpr
oduct
s.
• Devel
opi
ngst
rat
egi
esf
orpr
oductl
aunchi
ng.
• Devel
opmentofst
rat
egi
esi
nrel
ati
ont
o:
• Pr
oduct
s.
• Pr
oductmi
x.
• Mar
ket
s.
• Pr
omot
ionofpr
oduct
s,pr
ici
nganddi
str
ibut
ion.
2.TheAccount
ingFunct
ion

• Thi
sfunct
iondeal
swi
tht
hemoneyaspectoft
hebusi
ness.
• Accountinginvol
vescorrecti
on,r
ecordi
ng,presentat
ionandanalysi
sof
fi
nancialdat
a.Thefinancialsi
deconcernst
her ai
singoffi
nancesforthe
businessoperati
onsandmaki ngdecisi
onsonhowt hemoneyshouldbe
spent.
• Financi
alaccount
ingi
sconcer
nedwithpreparat
ionoff
inalaccount
sfor
thebenefi
tofshar
ehol
der
sandotherst
akeholders.
• Cost
saccount
ingi
sconcer
nedwi
thi
dent
if
yingt
hecost
sofpr
oduci
ng
out
put.
• Managementaccount
ing i
nvol
ves account
ing f
ordeci
sion maki
ng i
n
r
elat
iont
o:
• Pl
anni
ngact
ivi
ti
es.
• Budget
s.
• Capi
tali
nvest
ment
s.
• Thef
inancef
unct
ioni
nvol
vesmaki
ngdeci
sionsabout
:
• Cashf
low.
• Cr
edi
tcont
rol
.
• Debtcont
rol
.
• Expendi
tur
e.
3.Pr
oduct
ionFunct
ion

• Deal
swi
tht
hemaki
ngofgoodsandpr
ovi
sionofser
vice.
• Iti
nvolvescoordinati
onofhumanandot herr
esour
cest
oachi
evet
he
desi
redlevelofoutputatt
hel
owestcost
s.
• Pr
oduct
ionf
unct
ioni
nvol
ves:
• Pur
chasi
ngandI
nvent
ori
es
• Acqui
sit
ionofmat
eri
als.
• St
ockcont
rol
.
• St
orage.
• Resear
chandDevel
opment
 • Devel
opmentonnewpr
oduct
s.
• Desi
gn.
• Devel
opmentofnewpr
ocesses.
• Pr
oduct
ionPl
anni
ng
• Locat
ion.
• Layout
.
• Capaci
typl
anni
ng.
• Machi
neset
ti
ng.
• Wor
kandmet
hodst
udi
es.
• Cont
rolofoper
ati
ons
• Oper
ati
ons
• Schedul
ingofact
ivi
ti
es.
• Mai
ntenance.
• Qual
it
ycont
rol
• Di
str
ibut
ion.
4.TheHumanResour
ceFunct
ion

• Thisfunct
iondeal
swit
htheacqui
sit
ionanddepl
oymentoft
hehuman
resour
cesoftheor
gani
zat
ion.
• Allmanagementact
ivi
ti
esrelat
ingt
oempl oyeespay,wel
fare,condi
ti
ons
ofempl oymentand t
raini
ng arethe r
esponsibi
li
ty ofthe personnel
funct
ion.
1. Empl
oyeeResour
cing

• Cont
ract
sofempl
oyment
.
• Jobanal
ysi
s.
• Recr
uit
mentandsel
ect
ion.
• Ter
minat
ionofempl
oyment
.
2. Tr
aini
ngandDevel
opment

• Wor
kdesi
gn.
 • Managementdevel
opment
.
• Per
for
manceappr
aisal
.
3. Pay

• Payadmi
nist
rat
ion.
• Jobeval
uat
ion.
• Pensi
ons,
sickpay.
• I
ncent
ives.
• Fr
ingebenef
it
s.
4. Empl
oyeesRel
ati
ons

• Negot
iat
ions.
• Par
ti
cipat
ion.
• Gr
ievances.
• Di
sci
pli
ne.
5. Wel
far
e

• Heal
thandsaf
ety.
• Medi
calser
vices.
• Di
sabi
li
ty.
• Soci
alact
ivi
ti
es.
• Redundantandr
eti
redwor
ker
s.
5.I
nfor
mat
ionTechnol
ogy

• Thisfunct
iondeal
swi t
hinst
all
ing,mai
ntai
ning,updat
ingandmoni
tor
ing
theinf
ormati
ontechnol
ogy.
Or
gani
zat
ionalSt
ruct
ures

• Iti
spri
mari
lyconcer
nedwi
tht
heal
locat
ionoft
asksanddel
egat
ionof
aut
hor
it
y.
Mat
ri
xSt
ruct
ures

• Iti
soneinwhi chateam ofspeci
ali
stsf
rom di
ff
erentdepar
tment
soft
he
organi
zat
ion gettogetherto work on a specialproj
ectundert
he
 super
visi
onoft
hepr
ojectmanager
.
• Itcanbedefi
nedasanorganizati
ont
hatempl oysamultipl
ecommand
system t
hati
ncl
udesnotonlythemul
ti
plecommandst r
ucturebutal
so
rel
atedmechani
sm andassoci
atedor
ganizat
ionalcul
tur
eandbehavior
patt
ern.
Di
agr
am

Advant
agesofMat
ri
xSt
ruct
ure

• I
tall
owst otalcommuni cat
ionbet
weendepartmentsandcutsacross
t
radi
ti
onalboundaries.Theknowl
edgeandexpert
isecanbetr
ansf
erred
f
rom oneprojectt
oanother.
• Ef
fortsarechannel
edtowardswhatisgoodf
ort
hepr
oject
/busi
ness
i
nsteadofi
ndivi
dual
sordepart
ment
s.
• Asprojectt
eamscanbecr eat
edeasi
ly,t
hesyst
em r
espondsqui
ckl
yto
changi
ngmar ket
ingcondi
ti
ons.
• I
tdevel
opsi
ndi
vidualski
ll
sandhel
pst
hem boostconf
idence.
• Itact
sasamot
ivat
ionalt
oolaspeopl
ecani
dent
if
ythemsel
vesatt
heend
product
s.
• Ther
eisi
nter
-di
sci
pli
nar
ycooper
ati
onwi
thi
ntheor
gani
zat
ion.
• Pr
ovi
desf
lexi
bil
it
y.
• Cr
eat
ivi
tyi
sencour
aged.
• I
tencour
agesdecent
ral
izat
ion.
• Decisionmaki
ngcanbedel
egat
edt
olowerl
evel
swhi
chhel
pinempl
oyee
development
.
• Hi
ght
echni
calst
andar
dscanbemai
ntai
ned.
Di
sadvant
agesofMat
ri
xSt
ruct
ure

• I
tencouragespowerst
ruggl
esast
o who i
sgoi
ng t
o bet
hepr
oject
manager
.
• May be ti
me consumi
ng when par
ti
cipant
s spend mor
eti
me on
di
scussi
onrat
hert
hanonact
ion.
• Mayaff
ectt
hemor al
ewhenpeopl
ear
ere-
arr
angedatt
hebegi
nni
ngand
endoft
hepr
oject
.
• Spl
ital
legi
ances.
 • Over
lappi
ngaut
hor
it
y.
Funct
ionalSt
ruct
ures

• Iti
swheret hecompanyisdivi
dedintosepar
ateuni
tsbasedonr oles
suchasaccount
ing,
market
ing,r
esear
chanddevel
opmentordi
str
ibut
ion.
• I
tcanbedefinedasonewhichisst
ruct
uredaccor
dingt
ofunct
ionsand
makesuseofspeci
ali
zedr
esour
ces.
Advant
agesofFunct
ionalSt
ruct
ures

• Itof
fershighlevelofspeci
ali
zati
onsi nceeachuni toper
atesasaself-
cont
ainedmi ni
-companychargedwi thcarryi
ngouti t
sspecifi
crol
eand
the workers become expert
s withint heirfuncti
onalarea and t
he
companybenef i
tsfr
om thei
rexper
tiseandexper i
encesover
time.
• Awor
kerwhoisanexpertinhisf
unct
ionalar
eacanperf
ormtaskswi
th
hi
ghl
evel
ofspeedandef
fici
encywhi
chenhancespr
oduct
ivi
ty.
• Staf
fmember swit
hinadepar
tmentcaneasi
lycommuni
cat
eanduseone
another
’sknowl
edge.
• Funct
ionalst
ruct
uremakessuper
visi
oneasi
er.
Di
sadvant
agesofFunct
ionalSt
ruct
ures

• St
affmaydevel
opanar
rowout
lookandbeunabl
etoseet
hebusi
nessas
awhole.
• I
tmaybediff
icultt
oprepar
emanager
sforawi
der
angeoff
unct
ionsi
nce
t
her
eisspeci
alizat
ion.
• Becausefunct
ionalmanager
shavet orepor
ttocent
ralheadquar
ter
s,i
t
canbedif
ficul
ttogetqui
ckdeci
sions.
• Itisoftenhardertodeter
minetheaccount
abi
li
tyandjudgeperfor
mance
i
nf uncti
onalstr
uctur
es,forexampl
e,ifanew productfai
ls,whoisto
blame.
• Whil
especiali
zedunitswi t
hinthef
uncti
onalst
ruct
uresoft
enperf
orm
wi
thhighlevelofef
fi
ciency,t
heymayhavedif
fi
cul
tyinwor
kingwel
lwit
h
ot
heruni
ts.
• Ift
hecompanyexpandsintonewgeographi
calar
eas,
maint
aini
ngcontrol
andmanagi
ngtheseparatefunct
ionscanbeevenmoreofachal
lenge.
Di
agr
am

Geogr
aphi
calSt
ruct
ures
 • I
tisor
gani
zedbyr
egi
ons.
• I
tisal
soknownast
hedepar
tment
ali
zat
ion.
• Thisiscrucialt
ol ar
gescalefi
rmswhoseacti
vit
iesaregeographi
call
y
spread overa wide area,f
orexampl
e,banks,insur
ance companies,
tr
ansportcompaniesetc.
• Act
ivi
ti
esar
edi
videdi
ntozones,
divi
sionsandbr
anches.
Di
agr
am

Advant
agesofGeogr
aphi
calSt
ruct
ures

• Theequi
pmentusedi
sal
linonepl
ace.
• Manager
sdevel
opexper
ti
sei
nsol
vingpr
obl
emspecul
iari
nthei
rlocat
ion.
• Manager
sdevelopper
sonalr
elat
ionswi
thcust
omer
sandgett
oknow
cust
omers’
probl
ems.
• Mul
tinat
ionalcompani
esmaygett
obeknowni
ndi
ff
erentr
egi
onsoft
he
wor
ld.
• Operat
ingcost
sar
elowerasal
lbusi
nessf
unct
ionsar
eoper
atedwi
thi
n
eachregi
on.
• Thef
ir
m wi
ll
beabl
etocompet
e.
• Tr
aini
nggr
oundf
ormanagement
.
• Bet
tercommuni
cat
ionatl
ocall
evel
s.
• Emphasi
sisonl
ocal
condi
ti
ons.
Di
sadvant
agesofGeogr
aphi
calSt
ruct
ures

• Pr
obl
emsofcont
rolsi
ncesomeact
ivi
ti
esneedt
obecent
ral
ized.
• Hi
ghcost
s.
• Confli
ctsmayar isebetween regi
onaldivi
sions’act
ivi
ti
esand over
all
organi
zati
onalgoals,
forexample,i
tispossi
blethatmanager
smaybegin
toint
roducethei
rownpol i
cies.
• Ther
eisdupl
icat
ionoff
unct
ionsatal
llocat
ions.
• Theymayr equi
rethatt
heheadoffi
cecomesoutwit
hextensi
ver
ulesand
regul
ati
onstoensureunif
ormi
tyofqual
it
yamonglocat
ions.
• Doesnotfost
erempl
oyeeknowl
edgeofpr
obl
emsexper
iencedatot
her
l
ocat
ions.
Di
visi
onalFunct
ions

• I
tinvol
vesgr
oupi
ngofact
ivi
ti
esont
hebasi
sofcommoncust
omer
sor
t
ypesofcust
omer
s.
• Itinvol
ves gr
oupi
ng t
oget
her empl
oyees who dealwi
th speci
fi
c
cust
omers.
• Theassumpt
ionisthatcust
omersineachdivi
sionhavecommonsetof
probl
emsandneedsthatcanbebestmetbyspecial
ist
s.
Di
agr
am

Advant
agesofDi
visi
onalFunct
ions

• Cust
omer
sgett
headvant
ageofspeci
ali
zat
ion.
• Cust
omers’needs ar
e sat
isf
ied and cust
omers mightpref
ert o do
busi
nesswi
thacompanythati
ssensiti
vetospeci
fi
ccustomerneeds.
• Mar
ketsegment
ati
on–abusi
nessmaydi
videi
tsmar
keti
ntodi
ff
erent
mar
ketsegment
s.
• Devel
opexper
ti
sei
nhandl
ingcust
omer
s.
Di
sadvant
agesofDi
visi
onalFunct
ions

• Topmanagementneedst ocoordinateacti
vit
iesofdif
ferentdepar
tments
toachi
eveorgani
zat
ionalgoal
s.Indivi
dualdepartmentsmaypur suethei
r
owngoalsandseniormanagementmi ghtfi
nditdiff
iculttocontr
olthe
organi
zat
ion.
• Somet
imescust
omerneedscutacr
osssever
aldepar
tment
s.
• Cust
omerdefini
ti
on – i
tis notal
ways possi
blet
o cl
ear
ly def
ine a
par
ti
cul
arcust
omergroup.
• In-
effi
ciency – i
tis possi
blet
hatsome depar
tment
s aretoo smal
l
becauset heydonothaveenoughcustomers,i
nthiscase,cost
sper
customercouldbehi
gh.
TopSt
ruct
ures

• I
tisastr
uctur
einwhichthespanofcont r
oli
snar
row andasar
esul
t
t
herei
salar
genumberofhier
archi
call
evel
s.
• Atal
lor
gani
zationalst
ruct
urehasanar
rowspanofcont
rolwhi
chr
esul
ts
i
namulti
pli
cit
yoflayers.
• Ther
eisdecent
ral
izat
ionofaut
hor
it
y.
 • Ther
ear
emanyaut
hor
it
ylevel
s.
• Longl
inesofcommuni
cat
ion.
• Hi
ghdegr
eeoff
unct
ionalspeci
ali
zat
ion.
• Bur
eaucr
ati
c.
Advant
agesofTopSt
ruct
ures

• Canadoptt
ochangebet
terandt
her
eisbet
tercoor
dinat
ion.
• I
tfaci
l
itat
esef
fect
ivesuper
visi
onduet
ocent
ral
izedordosedwor
k.
• Oppor
tuni
ti
esf
orpr
omot
ionar
egr
eat
erduet
omanyposi
ti
ons.
• Goodf
orst
affdesi
ri
ngdet
ail
edgui
dance.
• Lesspr
essur
eonmanager
s.
• Easyappl
icat
ionasl
esscompet
entsubor
dinat
escanbeempl
oyed.
Di
sadvant
agesofTopSt
ruct
ures

• Del
ayedcommuni
cat
ion.
• Cost
lyi
nter
msofadmi
nist
rat
iveover
heads.
• Sl
owdeci
sionmaki
ng.
• Gr
eateradmi
nist
rat
ivedi
stancebet
weent
het
opmanagementandt
he
wor
kers.
• Li
tt
leoppor
tuni
tyf
ordevel
opmentofsubor
dinat
es.
Fl
atSt
ruct
ures

• I
tinvol
vesabr
oadspanofcont
rolandr
elat
ivel
yfewhi
erar
chyl
evel
s.
• Ther
eiscent
ral
izedaut
hor
it
y.
• Fewaut
hor
it
ylevel
s.
• Lowl
evel
sofdel
egat
ion.
• Easi
ercoor
dinat
ion.
Advant
agesofFl
atSt
ruct
ures

• Good f or staf
f r
equi
ri
ng gr
eat
er i
ndependence, chal
lenge and
responsi
bil
it
y.
• Speedyandi
mpr
ovedcommuni
cat
ion.
 • Reducedover
headcost
sandusessuper
visor
s.
• Fast
erdeci
sionmaki
ng.
• Lesseradmi
nist
rat
ivedi
stance.
Di
sadvant
agesofFl
atSt
ruct
ures

• Loosecont
rol
.
• Di
ff
icul
tincoor
dinat
ion.
• Mor
emi
stakesduet
oloosesuper
visi
on.
• Pr
essur
eonmanager
sandheavypenal
tyf
orf
ail
ure.
For
malSt
ruct
ures

• I
tr ef
ers to t
he organi
zat
ional str
uctur
e deli
beratel
y cr
eat
ed by
managementf
orachi
evi
ngtheobject
ivesoftheent
erpri
se.
• Itisapat t
ernofacti
vit
ies,processes,humanr el
ati
onshipsandrol
es
plannedandstr
uct
uredinordertoaccomplishor
ganizat
ionalgoal
s.
I
nfor
malSt
ruct
ures

• Itr
efer
st othepat
ternofacti
vit
ies,i
nter
acti
onsandhumanr el
ati
onships
which emergespontaneousl
yduet o soci
aland physi
ologi
calforces
operat
ingattheworkpl
ace.
• I
tri
sesnat
ural
lyonthebasi
soffri
endshi
psorsomecommoni
nter
est
whi
chmaynotberel
atedt
owork.
• Iti
s an uni
ntended and unplanned net
wor
kofunof
fi
cialand soci
al
pat
ter
nsofhumanr el
ationshi
ps.
Differ
encesbetweenFor malandI nformalStr
uctur
es
Point Formalor ganization Inf
ormalor gani
zati
on
Origin Createddeliberately Ari
sespont aneousl
y
Nat ur
e Plannedandof fi
cial Unplannedandunof fici
al
Size Large Small
Focus Buil
tar oundjobs Buil
taroundpeopl eandt hei
r
rol
es
Cont i
nui
ty Stable Unstableanddynami c
Structur
e Defini
te str
ucture – Str
ucture-
less,i
mper sonaland
mechani calandr ati
onal emotional
Goal s Profit
s and ser vice to the Sati
sfacti
ont othemember s
society
Cont r
olPurpose Ri gidrulesandr egulat
ions Groupnormsandval ues
Communi
cat
ion Dif
ficult and well def
ined Unspeci
fi
ed channels, t
wo
paths.Onewayandslowf low waycommuni cati
onandfast
ofinformati
on fl
owofinfor
mation
I
nfluence Legiti
mateauthor
it
y Power
Process

Hi
erar
chi
calSt
ruct
ure/
Bur
eaucr
ati
c

• Iti
swheretherearedif
fer
entl
ayer
sofor
gani
zat
ionwi
thf
ewerandf
ewer
oneachhigherl
evel.

• Iti
softenrepresent
edasapyr amid.Mostco-
oper
ati
onalgover
nment
s
arehi
erar
chicalwit
hdif
fer
entl
evel
sofmanagementpower.
Di
agr
am

Advant
agesofHi
erar
chi
calSt
ruct
ure

• Clearcommuni
cat
ion.Employeesrecei
vetheirpol
icy,di
rect
orsandday
todayassi
gnment
sf r
om t
heirdir
ectmanagers.
• Ther
oleofeachi
ndi
viduali
scl
earandwel
l-
def
ined.
• Speci
ali
zat
ionoft
asksi
sal
sopossi
ble.
• Responsi
bil
it
yandaccount
abi
li
tyar
ecl
ear
lydef
ined.
Di
sadvant
agesofHi
erar
chi
calSt
ruct
ure

• Inf
lexi
bil
it
y– itworks f
orstandardized processes butnotusefulin
dynamicenvi
ronmentt
hustheyareslowtor eacttonewopport
unit
yt i
es.
• Slow deci
sionmaki
ng–t hi
sisbecauser
esponsi
bil
it
yandaut
hor
it
yar
e
centr
ali
zedinfewpeopl
eatthet
op.
• Resi
stancet
ocr
eat
ivi
ty.
• I
tcanst
if
lecr
eat
ivi
tyandi
nnovat
ion.
• Lack ofcoordinat
ion – t
her
e arefew hor
izontalli
nks between t
he
depar
tments.Depar t
mentsmakedecisi
onswhi ch benef
itthemsel
ves
rat
herthanthebusi
nessasawhole.
• Managementbywal
kingar
ound(
MBWA)
.
• Unstr
uctur
ed appr
oach to hand t
o hand di
rectpart
ici
pati
on by the
managersintheworkrel
atedaff
air
softhei
rsubordi
nat
esi ncont
rastto
ri
gidanddist
ancemanagement.
• I
n managementby wal
king ar
ound,manager
s spend a si
gni
fi
cant
 amountofthei
rti
memaki
ngi
nfor
medvi
sit
stowor
kar
eaandl
ist
eni
ngt
o
theempl
oyees.
• Thepurposeofthi
sexerci
seistocoll
ectquali
tat
ivei
nformati
on,l
ist
ento
suggesti
ons and compl
aint
s and keep a f
ingeron the pul
se ofthe
organi
zati
on.
• Al
socal
ledmanagementbywal
kingar
ound.
ManagementbyObj
ect
ives(
MBO)

• Iti
sapr ocesswher ebythesuperi
orandthesubordi
natemanagersofan
enterpr
ise j
ointl
yi dent
if
yi t
s common goals,defi
ne each i
ndi
vidual
’s
maj orareas ofi nfl
uence and r
esponsi
bil
it
yint erms ofthe resul
ts
expectedofhi m anduset hemeasuresasaguideforoperat
ingtheunit
andassessingt hecontri
buti
onofeachofit
smember s.
Obj
ect
ivesofManagementbyObj
ect
ives

• Tomeasur
eandj
udgeper
for
mance.
• Tor
elat
eindi
vidualper
for
mancet
oor
gani
zat
ionalgoal
s.
• To clar
if
y both the j
ob t
o be done and t
he expect
ati
ons of
accompl
ishment
s.
• Tof
ost
eri
ncr
easi
ngcompet
enceandgr
owt
hoft
hesubor
dinat
e.
• Toenhancecommuni
cat
ionbet
weensuper
ior
sandsubor
dinat
es.
• Toser
veasabasi
sforj
udgment
saboutsal
aryandpr
omot
ions.
• Tost
imul
atet
hesubor
dinat
es’
mot
ivat
ion.
• Toser
veasadevi
cef
oror
gani
zat
ionalcont
rol
andi
ntegr
ati
on.
N.B.
:Theobject
iveoft
hebusinessmustfoll
owt hesmar tcr
it
eri
on.Theyshoul
d
bespeci
fi
c,measurabl
e,achi
evabl
e/at
tai
nable,
reali
sti
c,andtimespeci
fi
c.

Advant
agesofManagementbyObj
ect
ives

• I
mpr
ovedmanager
ialper
for
mance.
• Concent
rat
eonpr
ofi
tmaki
ngact
ivi
ti
es.
• Bet
terdel
egat
ion.
• I
mpr
ovedcommuni
cat
ion.
• I
mpr
ovedmor
alandsenseofpur
pose.
 • Mor
eef
fect
ivedevel
opmentofexecut
ives.
• Ear
lyr
ecogni
ti
onofmanagementpot
ent
ial
.
Di
sadvant
agesofManagementbyObj
ect
ives

• Di
ff
icul
tyi
ngoalset
ti
ng.
• Ti
meconsumi
ng.
• Mor
epaper
wor
k.
• Pr
essur
eonpeopl
e.
• Leader
shi
ppr
obl
ems.
ManagementbyExcept
ion

• Thi
sisalmostsi
milart
ot heconceptofmanagementbywalki
ngaround.
Inthi
scase,cri
ti
calareaswi l
lbemoni t
ored,donat
ionsr
ecordedand
act
iontakent
ocorr
ectdeviat
ions.
Benef
it
sofManagementTheor
ies

• I
ncr
easedper
for
mance.
• I
mpr
ovesef
fi
ciencyofpr
oduct
ion.
• I
mpr
ovespr
oductqual
it
y.
• I
ncr
easesef
fect
ivenessofpr
oduct
ionpr
ocessesandsyst
em.
• Hel
psmanager
stomakedeci
sions.
• I
tdef
inest
her
olesofmanager
s.
Li
mit
ati
onsofManagementTheor
ies

• Itresult
si nrepeti
ti
ve and monot
onous t
asks whi
ch may cause
employeesdi
ssat
isf
acti
on.
• Someoft
het
heor
iesar
enotspeci
fi
c.
• I
tresul
tsi
noversi
mpl
if
icat
ionofhumanbehavi
or.
• I
tisaf
fect
edbyconst
antchangesi
nenvi
ronment
.
Addi
ti
onalNot
es

Del
ayer
ing

• Thepr
obl
em associ
atedwi
tht
allst
ruct
ureshasf
orcedf
ir
mst
ooptf
or
 del
ayer
ing.
• Iti
saprocessofr
emovi
ngwhol
elayer
sofmanagementt
ocr
eat
eshor
ter
str
uct
ure.
Or
gani
zat
ionalChar
ts

• Itis a pict
ori
al or di
agr
ammatical r
epr
esent
ati
on of f
unct
ions,
depar
tment
sandpeopl
einanorgani
zati
on.
• Separat
eunitsandposi
ti
onsinanorgani
zati
onarerepr
esent
edbyboxes
whichareconnect
edtoeachotherbydot
tedli
nes.
• Sol
idl
inesindicat
echainofcommandandof
fi
cialchannelofcommand
andof
fici
alchannelofcommunicat
ion.
Advant
agesofOr
gani
zat
ionalChar
ts

• Employeesar
egi
venacl
earst
ruct
ure/
pict
ureofhowt
heor
gani
zat
ioni
s
st
ructur
ed.
• Manager
sandsubor
dinat
esknow thei
rresponsibi
li
ti
es(i
fsomeonei
s
r
equi
redtohandl
easpeci
fi
cprobl
em,thechartindi
cateswher
eheist
o
r
eport
).
• The process ofmaking up a chartcan pi
n poi
ntt
he or
gani
zat
ion’
s
def
ects,forexampl
e,areasofdupl
icat
ion.
• Provi
des usefulsource ofinf
ormat
ion f
ornew r
ecr
uit
s hi
ghl
ight
ing
posit
ion,
responsi
bil
it
yandli
nesofaut
hori
ty.
• For
malrelat
ionshi
p bet
ween di
ff
erentempl
oyeesand depar
tment
sis
hi
ghli
ght
ed.
Di
sadvant
agesofOr
gani
zat
ionalChar
ts

• Thechartdoesnoti
ndi
cat
ewhohasgr
eat
erdegr
eeofr
esponsi
bil
it
yand
aut
hori
tyoneachmanager
iall
evel
.
• I
tdoesnoti
ndi
cat
ethei
nfl
uenceori
nfor
malr
elat
ionsandf
ormal
fact
s.
I
nfor
malGr
oups/
Grapevi
ne

Advant
agest
oOr
gani
zat
ions

• Theyhelpmemberstocommuni cat
e.Managerscanuset heseunofficial
channel
stotransmitmessagessecretl
y.Theycheckr eaction before
off
ici
all
ymaki
ngt hedecisi
onattheend.Thef i
rm wil
lmakeadeci sion
support
edbyt
heempl oyeesandhenceavoi
dresist
ancetochange.
 • Theyshar
ecommonnormsandval
uesandhencet
heyar
eli
kel
ytoagr
ee
andworkinhar
mony.
• Inf
ormalgroups provide socialsati
sfact
ion,st atus and secur
it
y,for
example,
tomakej okes,eatmealsandsocializeaf t
erwor k.Thi
ssenseof
ful
fi
ll
mentreduceslabourturnoverandabsent eei
sm.
• Asenseofsecurit
yisachi
evedsi
ncetheyaremovi
ngi
nnumber
s,f
or
exampl
e,canbar
gainf
ormorewageswi
thoutf
ear
.
• Fastcommunicati
on–itdoesnotf
oll
ow scal
archai
n,sot
her
ecanbe
fast
erspr
eadofinfor
mat
ion.
• I
thel
psmember
stosol
veper
sonalpr
obl
ems.
Di
sadvant
agest
oOr
gani
zat
ions

• Gr
apevi
nedi
spensesbot
htr
ueandf
alsemessages.
• Theycanleadtoheavyresi
stancet
ochangesi
ncet
heyt
akeadvant
age
ofst
rengt
hinnumbers.
• Conf
ormi
ty– they actas a r
efer
ence point
,encourages conf
ormit
y
amongmembersact
ingthesameway,lacki
ngcreat
ivi
tyforf
earoflosi
ng
gr
oupappr
oval
.
ACompar i
sonbet weenDecent rali
zat
ionandDelegat i
on
Decentral
ization Delegation
Iti
stheendr esultofdelegat
ion. Iti
sapr ocessoranact .
Itdenotest her elat
ionshipbetweent op Itdenot es t he r
elat
ionship bet
ween a
managementandvar i
ousdepar t
ments. super i
orandasubor dinate.
Iti
soptionalast opmanagementmayor I ti
sessent ial f
ormanagementpr ocess.
maynotdi sper seauthorit
y.
The cont rol may be del egated to Thedel egatorexer ci
sescont r
oloverthe
depart
ment alheads. subordinates.
Iti
saphi l
osophyofmanagement . Iti
sat echni queofmanagement .
I
MPACTOFI
CTONMANAGEMENT
Chapt
er8

QUESTI
ONS:MARKETI
NGMANAGEMENT
MARKETI
NGMANAGEMENT

Marketing managementr efersto an integrated processt hatencompasses

i
denti
ficat
ion,antici
pati
onandsat i
sfact
ionofconsumerneedsandwant s.Iti
sa
managementpr ocessthatinvol
vesidentif
yingwhatconsumer sneedandwant ,
toprovidegoodsandser vicesthatsatisfyt heseneedsandwant s.Itcanbe
i
denti
fiedast hepr ocessbywhi chcompani escreateval ueforcustomer sand
bui
ldstrongrelati
onshipsinordert
ocapt ureval uefrom customersinreturn.

Di
ff
erencesbet
weenMar
ket
ingandSel
li
ng

• Marketi
ng i
s concer
ned wi
thfir
stidenti
fyi
ng customerrequi
rements
whereassell
ing i
sonlyconcer
ned wit
h making consumerswantt he
pr
oductofthecompany.
• Marketi
ngt akesthecust
omerasaki ngandbel i
evethatthebestand
bett
erpr oducts ar
e onl
y det
ermined by customers whereas sel
li
ng
bel
ievesthatthecompanybestknowsthepr oductt
hatconsumersmust
buy.
 • Sel
li
ngdoesnoti nvol
vesel
li
ngresearchintocustomerspeci
fi
cati
onbut
i
tall
owspr oductstobemadef i
rstandt henthepr oductwil
lbesold
whereasmarket
ingaimstoprovi
deproductsthatsel
lthemsel
ves.
Mar
ket
ingManagementOr
ient
ati
ons

1.ThePr
oductConcept

• Itholdsthatcust
omer
sfavorpr
oduct
sthatar
eavai
labl
eand hi
ghl
y
aff
ordabl
e.
• Ther
efore,managementshouldfocusonimprovi
ngproduct
ionef
fi
ciency.
I
tisbeli
evedthatonceaproductischeap,
customer
swi l
lwanti
t.
• However,althoughusef
ulinsomesituati
ons,
theproducti
onconceptcan
l
eadtomar keti
ngmyopia.Companiesadopti
ngthisconceptrunamaj or
r
iskoffocusi ngtoonar
rowlyontheirownoperat
ionsandl osi
ngsightof
r
ealobjecti
ves,thati
s,sat
isf
yingcustomerneedsandbuildingcustomer
r
elat
ionships.
• Itholdsthatconsumerswil
lfavorproduct
sthatof
fert
hemosti
nqual
it
y
performanceandinnovat
ivefeat
ures.
• I
tfocusesonmaki
ngcont
inuouspr
oducti
mpr
ovement
s.
• I
tassumest
hatpr
oducer
sknowt
hebest
.
2.TheSel
li
ngConcept

• Theideat hatcust
omerswillnotbuyenough ofthef
irm’
spr
oduct
s
unl
essitundert
akesal
argescal
esel
li
ngandpromoti
onef
fort
.
• I
tfocusesont
heski
ll
sofsel
li
ngr
athert
hanont
heneedsoft
hebuyer
.
3.Mar
ket
ingConcept

• Themarketi
ng managementphil
osophythatachi
evi
ng or
ganizat
ional
goal
sdependsonknowingtheneedsandwant softhetar
getmar ket
s
andsoachi
evingt
hedesi
redsat
isf
acti
onbett
ert
hancompeti
tor
sdo.
4.Soci
alMar
ket
ingConcept

• Apri
ncipl
eofenlightenedmarketingthathol
dsthatacompanyshould
make good mar ket
ing deci
sions by consider
ing consumer want
s,
companyrequi
rementsandsociety’sl
ongrunint
erest
s.
Di
stinct
ionbet
weenMar
ketingandSel
li
ng
Marketi
ng Sel
li
ng
Fi
rst deter
mines t
he needs of the Manufact
urest
hepr
oductf
ir
st.
consumer.
Iti
sprofi
tor
iented. I
tissalesvolumeor i
ent
ed.
Planni
ngisl
ongr un. Pl
anningisshor tr
un.
Consumersdeterminet
hepr
ice. Cost
sdet er
mi nethepri
ce

TheDi f
fer
encesbetweenMar ketandMar
keting
Mar ket Mar keti
ng
Place where people/
trader
s meet to Processofi dent
if
ying,ant
ici
pat
ingand
exchange. satisf
ying of consumers’needs and
preferences

Mar
ket
ingMi
x

• Market
ingmixconsi
stsoft
he4Ps,t
hati
s,Pr
oduct
,Pl
ace,Pr
iceand
Pr
omot i
on.
• Thisr ef
ersto cont
rol
labl
e var
iabl
es t
hat ar
e consi
der
ed by the
organi
zati
onwhencomingupwi t
hwaysofrespondi
ngtothemarket’
s
demand.
• I
tist
het
otalassor
tmentofpr
oduct
,pl
ace,
pri
ceandpr
omot
ion.
1.Pr
oduct

• Iti
sthetot
alsetofchar
act
eri
sti
csdesi
gnedt
opr
ovi
dequal
it
ytot
he
cust
omer
s.
• I
tisanyt
hingt
hatcanbeof
fer
edt
omar
ket
ingf
orat
tent
ion.
• I
tconsi
der
svar
iet
y,si
ze,
packagi
ng,
brandnamesandpr
oductf
eat
ures.
2.Pr
ice

• I
tist
hemonet
aryval
ueat
tachedt
oapr
oduct
.
• I
tiswhatt
hepr
oducti
sexpect
edt
obewor
thy.
• I
tist
heval
uewhi
chi
susedf
ort
heexchangeofpr
oduct
s.
• I
tconsi
stsofcr
edi
tter
ms,
discount
s,pr
ici
ngst
rat
egi
esandpol
ici
es.
3.Pr
omot
ion

• Iti
sasetoft oolsort act
icswhi chareusedtoencourageconsumersto
buyt heproduct,forexampl e,salespromot
ion.Thi
sincludeadver
ti
sing,
personalsel
li
ng, publ
icati
onet c.
4.Pl
ace
 • Thesear
etact
icsi
nvol
vedi
nmovi
nggoodst
other
ightconsumer
satt
he
ri
ghtt
ime.
• I
tincl
udesi
ssuesonchannel
s,cover
age,
locat
ionandt
ranspor
t.
Pr
oduct

• Apr
oducti
sanyt
hingt
hatcanbeof
fer
edt
oamar
ketf
orat
tent
ion.
• Productmeanst
hegoodsandser
vicescombi
nat
iont
hecompanyof
fer
s
tothetar
get
edmarket
.
• Anact
ual
productconsi
stsofsi
xmai
nchar
act
eri
sti
cs,
thati
s:
• Qual
it
y.
• Br
andname.
• Packagi
ng.
• Desi
gn.
• Feat
ures.
• Pr
oductcycl
e.
Pr
oductLi
feCycl
e

• Thiswasder
ivedfrom t
heorgani
cmet aphorthatal
lli
vingt
hingspass
thr
oughmanystages,
thati
s,f
rom bi
rt
htodeath.
• Productli
fecycl
econceptst
atesthatal
lpr
oduct
sint
hei
rcommer
ciall
if
e
passthroughmanystages,t
hatis:
• Resear
chanddevel
opment
.
• I
ntr
oduct
ion.
• Gr
owt
h.
• Mat
uri
ty.
• Decl
ine.
• Fi
gur
e8.
1showsapr
oductl
if
ecycl
e
Fi
gur
e8.
1:Pr
oductLi
feCycl
e
1.Resear
chorPr
oductDevel
opmentPhase

• Resear
chanddevel
opmentoft
hepr
oduct
.
• Hi
ghcost
s.
• Pr
epar
ati
onofmar
ket
ingpl
anpr
iort
olaunch.
2.I
ntr
oduct
ionPhase

• I
tiswhenapr
oducti
sint
roducedi
ntot
hemar
ket
.
• Productcan be r
egarded as a ri
sk because ofthe cer
tai
ntythat
consumerswi
llpur
chasetheproductint
her i
ghtvol
umeandatt her
ight
ti
me.
• New pr oduct
s wil
lr equir
e an eff
ect
ive publ
ic r
elat
ions, heavy
adver
ti
sementandsal
espr omot
ion.
• Themai
npur
poseofadver
ti
singi
stocr
eat
econsumerawar
eness.
• Att
hisst
age,
cost
sar
ever
yhi
ghbecauseofheavypr
omot
ions.
• Theor
gani
zat
ioncanusepenet
rat
ionpr
ici
ngandpr
iceski
mmi
ng.
• Thepr
oducti
spur
chasedbyi
nnovat
ors.
• Growthinsalesr evenuebuthighunitpr
oducti
oncost
s(becauseoflow
volumes)
,coupledwi thhighpromoti
onexpendi
tur
e,meantheproducti
s
l
ikelyt
obeprofitableatthi
sstage.
3.Gr
owt
h
 • Ift
hepr
oducti
sef f
ecti
vel
ypr
omot
edandwel
l-
recei
vedi
nthemar
ket
,
sal
eswi
llgr
owef
fecti
vel
y.
• Sever
alchangesi
nthemar
ket
ingst
rat
egyoccuratt
hegr
owt
hst
age.
• Themainobject
iveofadver
ti
singi
stoeducat
econsumersonspeci
fi
c
benef
it
soft
heproductr
athert
hantocr
eat
ebrandl
oyal
ty.
• Cust
omerl
oyal
tyi
snowbei
ngcr
eat
ed.
• Demandwi l
lincr
easer
api
dlyandsomet
imesmayexceedt
hepr
oduct
ion
capaci
tyoft
hef i
rm.
• I
tist
hest
agewher
epr
ofi
tsr
eacht
hei
rpeakst
age.
• A higherlevelofsal
es vol
umes enabl
es t
he f
ir
m t
o benef
itf
rom
economiesofscal
e.
• Pr
ofi
tsgr
owassal
esr
iseandcost
sfal
l.
• Thepr
oductpenet
rat
est
hemar
ket
s.
• Thepr
oducti
sboughtbyear
lyadopt
ers.
4.Mat
uri
ty

• I
tisthestagewhenapr
oducti
swel
l-
est
abl
ishedi
nthemar
ketwi
thaf
air
marketshare.
• Sal
esmayconti
nuet
ori
sebutatasl
owr
ateandpr
icest
endt
oshowa
downwar
dtr
end.
• Adverti
sementandsal
espr
omot
ionsmaybet
arget
edatspeci
alar
easof
i
nterest
.
• Thenumberofcompeti
torsmaydecr easeordeclineassomef i
rmsstart
l
eavi
ngthei
ndustr
yfordiver
sif
icat
ions,takeover
sandalt
ernat
ivemerges.
• Thepr
oducti
sboughtbyt
hemaj
ori
tyatt
hisst
age.
• Br
andpr
efer
encei
sacr
uci
alf
act
orf
orcont
inui
ngsuccess.
• Packagi
ngt
her
efor
epl
aysasi
gni
fi
cantr
olei
nthemar
ket
ingef
for
t.
5.Decl
ineSt
age

• Marketi
ngsaturat
ionoccursatthedecli
nestageanddemanddi sappears
completel
ybecause oft he st
rong competit
ive warf
are evi
denced by
sever
epr omoti
onsandchickeni
ngoutbyl esssuccessfulcompetit
ors.
• Thi
sst
agei
sal
sochar
act
eri
zedbyar
isei
nconcent
rat
ionofcompet
it
ors
 ast
heyf
orm al
li
ancesi
nthehopet
oremai
nvi
abl
e.
• Themaj ormar
ket
ingstr
ategi
eswhi chcanbeusedbyt heorgani
zati
on
arepackagi
ngi
mprovements,
productrej
uvenat
ionandpr
icer
educt
ions.
• The f
ir
m seeks t
o cutit
slosses,ei
therby cut
ti
ng i
ts cost
s orby
el
imi
nati
ngthepr
oduct.
Ext
ensi
on

• Ext
ensi
onst
rat
egi
esai
mtor
ejuvenat
ethepr
oductt
opr
olongi
tsl
if
e.
• Commonst
rat
egi
esi
ncl
udechangesi
n:
• Pr
oduct
.
• Packagi
ng.
• Thewayi
tispr
omot
ed.
• Thechannelofdi
str
ibut
ors.
Advant
agesoft
hePr
oductLi
feCycl
e

• I
tgivesmanagerstheabili
tytofor
ecastpr
oductdi
rect
ionsandpl
anf
or
t
imelyexecut
ionofr
elevantcompet
iti
vemoves.
• Hel
psasanexpl
anat
iont
ooli
nfaci
li
tat
inganunder
standi
ngofpastand
f
utur
esal
es.
• Usedasapar tofongoi
ngst
rat
egi
esval
i
dat
ingpr
ocesssi
ncei
tref
lect
s
non-
markett
rends.
• I
thel
psi
npl
anni
ngl
ong-
ter
m of
fensi
vemar
ket
ingst
rat
egy.
• Hel
pst
hemanager
sinel
imi
nat
ingdeadpr
oduct
s.
• Helpsthemanagerst odet
erminet
hespreadi
ngexpendi
turebudgetfor
eachproduct
,forexample,pr
oduct
sattheintr
oduct
ionstagerequi
rea
heavypromot
ionalspendi
ng.
• I
tassi
stst
hecompanyi
nthepl
anni
ngpr
ocess.
• I
thel
pst
olaunchdi
ff
erentst
rat
egi
est
ouseateachdi
ff
erentst
age.
• Ital
lowscompaniest
otakemor
epr
oduct
iveappr
oach t
o maxi
mize
prof
it
sandsal
es.
Di
sadvant
agesoft
hePr
oductLi
feCycl
e

• Notallproduct
sf ol
low t
hesamecycl
e,t
hati
s,somegoesst
rai
ghtt
o
decl
inef
rom theintr
oduct
ion.
 • I
tisdi
ff
icul
ttopr
edi
cthowl
ongapr
oductt
akesatonest
age.
• I
tisdi
ff
icul
twhendeal
ingwi
thbr
andsorser
vices.
• I
tismor
etheor
eti
calr
athert
hanpr
act
ical
.
• Somepr
oduct
ssuf
ferf
rom f
adsandf
ashi
on.
NewPr
oductDevel
opment

Bynewpr
oductwemean:

• Anewi
nnovat
ivepr
oductdi
sti
nctf
rom anyt
hingel
sei
nexi
stence.
• Asi
gni
fi
cantadopt
ionofanexi
sti
ngpr
oduct
.
• Ani
mit
ati
veof“
met
oo”pr
oduct
.
• Asti
mulatedadopt
ioni
nwhi
cht
hecust
omerper
cei
vesadi
ff
erencef
rom
anexi
sti
ngproduct
s.
NewPr
oductDevel
opmentPr
ocess

• I
deagener at
ion–thi
sinvol
vescomingupwit
hthei deasofnewpr oduct
s.
The ideas come from t he fi
rms’market research,technologi
cal
for
ecasti
ngandfrom r
esearchanddevel
opmentprojects.
• Eval
uat
ion–befor
eanideai
sdevel
opedint
oapr oduct
, i
tisnecessar
yto
eval
uat
ethepr
oducti
ntermsofmar
ketabi
li
tyandprofi
tabil
it
y.
• Scr
eeni
ng–t heprocessofj
udgi
ngwhet
heriti
sworthwhi
lepr
oceedi
ng
wit
hthepr
oductdevel
opmenti
sknownasscr
eeni
ng.
• Quest
ionst
hatshoul
dbeanswer
edi
ncl
ude:
• Doest
hepr
oductmeetadef
inedcust
omer
’sneed?
• I
nwhi
chsegment
(s)cani
tbesol
d?
• Whatposi
ti
onwi
lli
toccupyi
nthemar
ket
?
• Does the fi
rm possess t
he r
esources,ski
ll
s and exper
ti
se t
o
devel
op,produceandmarkett
heproduct?
• Whati
sthei
nvest
mentr
equi
redt
odevel
opt
hepr
oduct
?
• Development – af ter screeni
ng pr ocess,new pr oduct ideas are
developedintopr oductconceptsinwhi chthemar ket,t
hebenef i
tsofthe
productand i ts positi
on i
nr el
ation tor i
valsist est
ed bymeans of
consumerr esearch.The i dea i
s conver t
ed int
o a pr ot
otype and is
subjected t
ol aboratorytests and ot hertechnicalevaluat
ions.The
 devel
opmentpr
ocessconver
tst
hepr
otot
ypei
ntoasel
labl
epr
oduct
.
TestMar
ket
ing

Commer
cial
izat
ion/
Launch

Reasonswhynewpr
oduct
sar
edevel
oped:

• Tor
epl
acepr
oduct
sthathaver
eachedt
hedecl
inest
age.
• Tout
il
izespar
ecapaci
ty.
• Tomai
ntai
nandi
ncr
easesal
esr
evenueofgr
owt
hrat
e.
• Tof
ightcompet
it
ion.
• Tospr
eadr
iskst
hroughdi
ver
sif
icat
ion.
• Tomoveonwi
tht
echnol
ogy.
• Tomeetconsumerchangi
ngneeds.
Pr
obl
emsofNewPr
oduct
s

• Theyar
ecost
lyt
odevel
op.
• Theyar
edi
ff
icul
tyt
omanager
s.
• Theycant
arni
sht
hei
mageoft
hef
ir
mift
heyf
ail
towor
kpr
oper
ly.
WhyNewPr
oduct
sFai
lToTakeOf
f

• I
nadequat
emar
ketr
esear
ch.
• Mi
sleadi
ngmar
ketr
esear
chf
indi
ngs.
• Def
ect
sint
hepr
oduct
s.
• Act
ivi
ti
esofcompet
it
ors.
• I
nsuf
fi
cientori
nappr
opr
iat
emar
ket
ingef
for
ts.
• Poort
imi
ngf
ort
hel
aunch.
• Di
str
ibut
ionpr
obl
ems.
• I
nadequat
esal
esf
orce.
• Unexpect
edhi
ghcost
s.
TypesofPr
oduct
sorGoods

1.ConsumerGoods
 • Thesear
egoodspr
oducedandar
ereadyf
orusebyt
heenduser
.
• Theyar
esol
dforf
inalconsumpt
ion,f
orexampl
e,br
ead,eggs,mi
lk,f
ish
et
c.
• They referto any tangi
ble commodi
ty produced and subsequent
ly
purchasedtosati
sfycurr
entneedsandwantsofthebuyer
.
2.Conveni
entGoods

• Thesearegoodsa consumerbuyswi
th mi
nimum sear
ch ef
for
t,f
or
exampl
e,dr
ink,
cigar
ett
es,
sweet
set
c.
3.Shoppi
ngGoods

• Thesearegoodsonwhi chthebuyerspendsmucht i
meonchoosi ng
befor
emakingafi
nalpur
chasingdeci
sion,
forexampl
e,clot
hes,
fur
nit
ure
andshoes.
4.Speci
alt
yGoods

• Haveuniquecharacter
isti
cswhichasi
gni
fi
cantgr
oupofbuyer
scan
makespecialef
for
ttopurchaset
hem.
5.Pr
oducer
/Capi
talGoods

• Thesear egoodsmanuf
act
uredandusedi
nfur
thermanuf
act
uri
ngof
othergoods.
• Ref
erstot
ool
sandr awmat eri
alsusedt
opr
oduceot
hergoodsandt
hus
sat
isf
yhumanneedsindi
rectl
y.
6.Dur
abl
eGoods

• Thesear
egoodst
hathaveal
ongerl
if
espan.
• Theyar
egoodswhi
chl
astl
onger
.
Pr
oductPackagi
ng

• Packagi
ngi susedtoprotectt
heproductinorderfort
heproductt
o
maintai
n/r
etai
nit
sfr
eshnessunt
ilt
heyar
efinal
lyusedbyt
heconsumer
s.
• Packagi
nggi
vest
hepr
oductani
ndi
viduali
dent
it
y.
• Inmarket
ing,wesaypackagingisa‘si
lentsal
esman’meani
ngt
hati
t
prot
ect
swhatitsel
lsandsel
lswhati
tpr
otect
s.
• I
tal
lowscust
omer
stoeasi
lyi
dent
if
ythepr
oduct
.
• I
tisusedasamar
ket
ingt
oolandf
ori
ttobeef
fect
ivei
tshoul
dbever
y
 at
tr
act
ive.
• Thepackagemusti denti
fytheproductthroughit
sshape,size,symbol
,
forexample,Sur
fwashingpowderisident
ifi
edbythebluecol
orandDuck
toi
letcl
eanerisi
dent
if
iedbytheshapeoft heduckneck.
• Apackact
slikeamedi abycarr
yinginf
ormati
ononi
ngr
edi
ent
s,expi
ry
dat
e,pr
omot
ionalmessageanduseri
nstr
ucti
ons.
Advant
agesofPackagi
ng

• I
tident
if
iest
hepr
oduceroft
hepr
oduct
.
• I
tpr
otect
sthepr
oduct
.
• Itmaint
ainsandr
etai
nst
hef
reshnessoft
hepr
oductunt
ili
tisf
inal
ly
used.
• I
taddsval
uet
othepr
oduct
.
• Thepr
oductwi
llbesel
f-
sel
li
ng.
• Itenabl
es the pr
oducer
sto di
ff
erent
iat
ethei
rpr
oduct
sfr
om ot
her
competi
tor
s.
• I
tguar
ant
eest
hequal
it
yoft
hepr
oduct
.
• I
tcanbeusedt oextendthelifeoftheproductei
therbyr
evi
tal
izi
ng
i
nter
esti
nthepr
oducti
tsel
f,f
orexampl
e,newcoverdesi
gn.
• Packagi
ngcanbeusedasat
hemei
nadver
ti
sing.
Di
sadvant
agesofPackagi
ng

• Someofthemater
ial
susedinpackagi
ngmaycausei
njur
ieswhi
chmay
har
m ort
arni
sht
hef i
rm’
simage.
• I
tcausesl
andpol
lut
ion.
• I
tincr
easest
hecostoft
hepr
oductt
her
ebyr
aisi
ngpr
ices.
Pr
oductBr
andi
ng

• Abrandisaname,si gn,design,logooracombinat
ionoftheseint
ended
toi
denti
fytheproductsoft hesel l
erort
odiff
erent
iat
ethem fr
om those
compet
it
ors,f
orexampl e,Nokia,LG,Samsung.
• A successf ulbrandcandeliverfourl
evel
sofmeaningsandthesear
e
att
ributes,benefit
s,per
sonal
ityandval
uesaswell
-engi
neer
ed,wel
l-
bui
lt
,
durable,highpresti
ge,f
astandexpensi
vecars.
Char
act
eri
sti
csofMostSuccessf
ulBr
ands

• Mustbedi
sti
nct
ive.
• Mustbeeasyt
opr
onounce,
forexampl
e,Lux.
• Easyt
oremember
,forexampl
e,OMO,
LG.
• I
tmustsuggestqual
it
y,f
orexampl
e,Mer
cedesBenz.
• Itmustbeint
ernat
ional
lyaccept
abl
e/r
ecogni
zed,meani
ngi
tshoul
dnot
beli
mit
ed.
• Shoul
dbecapabl
eofbei
ngl
egal
lypr
otect
ed.
• Reducet
heamountofper
suasi
vesel
li
ngef
for
t.
TypesofBr
ands

• I
ndi
vidualbr
ands.
• Fami
lybr
ands.
• Di
visi
onalbrands–insomecases,t
hebr
andi
sat
tachedt
oadi
visi
onof
al
argeorganizat
ion.
• Distr
ibutor
’sbrands–t hebestexamplesoft
hesearesupermarkets’own
brands.Forther et
ail
er,theownbrandisanat t
empttocreateloyal
tyt o
theshop r at
hert han theproduct
.Itenablesthem to asser
tgr eater
control over the producti
on funct
ion wit
h goods made t o their
specifi
cati
on.
Advant
agesofBr
andi
ng

• Itpr
ovi
desthepr
oductwi
thani
dent
it
yandai
dsi
dent
if
icat
ionbyt
he
cust
omer.
• Itisashor
thandsummar
yofal
linf
ormat
ioncust
omer
shol
daboutt
he
product
.
• Itprovi
desasenseofsecur i
ty,reassur
anceaboutthequal
it
yoft he
goodsinsi
det
hepackage.Thi
sarisesoutoffami
li
ari
tywi
tht
hebrand.
• I
taddsval
uet
othepr
oduct
,maki
ngi
tmor
eappeal
ing.
• I
tisi
ntendedt
ohel
pcr
eat
eandsust
aint
hequal
it
yofcust
omer
s.
• Brand loyal
ty comes aboutas a r
esul
tof cust
omer
s’cont
inui
ng
sati
sfact
ion.
Pr
oductPosi
ti
oni
ng
 • Iti
nvolvesdefi
ningthel
ocat
ionofaproductr
elat
ivetootherproduct
sin
themar ketandt henpr
omoteitinsuchawayt oreinf
orce/
changei t
s
posit
ion.
• I
tisapr
ocesswherebyt
heorganizat
ioncreat
esanimageofthepr
oduct
i
nthemi
ndoftheconsumersothattheimagewil
lfi
ndaspace.
• Thefir
stst
epinproductposi
ti
oningi
sanal
ysi
soft
hemar
kett
odi
scover
thekeyat
tr
ibut
esoftheproduct
.
• Thi
sprocessi
ssubj
ect
iveandconcer
nsthewayinwhi
cht
hepr
oducti
s
per
cei
vedbycust
omersrel
ati
vet
ootherpr
oduct
s.
Met
hods/
Appr
oachesofPr
oductPosi
ti
oni
ng

Ther
ear
e4met
hodst
hatcanbeusedi
npr
oductposi
ti
oni
ng:

• Posi
ti
oni
ngbyat
tri
but
es(
feat
ures)
.
Forexampl
e,MercedesBenzcanbeposi
tionedasmiddleaged,fastand
saf
etycar
.Foodcanbepositi
onedasnut
ri
tiousandappeti
zing.

• Posi
ti
oni
ngbyqual
it
yorpr
ice.
Someproductsar
echar
gedhi
ghpr
icesasaguar
ant
eeofqual
it
y,f
or
exampl
e,Vol
vo.

• Posi
ti
oni
ngbybenef
it
s/usage/
appl
icat
ion.
Fi
rmscommunicatetoindi
vidual
sthebenef
it
sofusingtheproductby
posi
ti
oni
ng,
forexampl
e,Col
gat egi
veswhi
tet
eethandbet
terbr
eath.

• Posi
ti
oni
ngbyusage.
Forexampl
e,shopatOKwher
eever
yonei
sawi
nner
.

Advant
agesofPr
oductPosi
ti
oni
ng

• I
tgi
vescompet
it
iveadvant
age.
• I
tmayr
esul
tincust
omerl
oyal
ty.
• Af
ir
m wi
ll
beabl
etoat
tai
nit
smar
ket
ingobj
ect
ives.
Di
sadvant
agesofPr
oductPosi
ti
oni
ng

• Longpr
ocesswhi
chr
equi
rehi
ghl
yski
ll
edper
sonnel
.
• I
tist
ime-
consumi
ng.
 • I
tist
oocompl
ex.
Pr
ici
ng

• I
tref
erst
oat
tachi
ngamonet
aryval
uet
oapr
oduct
.
• I
tal
sor
efer
stot
heamountt
hepr
oducti
sexpect
edt
obewor
th.
• I
tisapr
ocessofat
tachi
ngval
uet
oapr
oduct
.
TheRol
eofPr
ici
ng/
Pri
cingObj
ect
ives

• Prof
itmaximizati
on – f ormor e pr
ivat
ely-owned or
ganizat
ions,prof
it
remainsanorderri
dingobjecti
ve.I
neconomi ct
heoryoffi
rms,profi
tsar
e
maximizedwhenmar ginalcost
sareequalt omarginal
revenue.
• Toachi
eveat ar
getlevelofprofi
ts–somef
irmsmayjustseektoobt
ain
acer
tai
nlevelofpr
ofit
sr at
herthant
hemaxi
mum l
evelofprof
it
s.
• Toincreasethemarketshare–somef i
rmsseekt oincreasethei
rmarket
shareeventotheextentofsacr
if
ici
ngshor
tterm profi
ts,f
orexample,use
ofpenetrat
ionpr
ici
ngst r
ategywherel
owpr i
cesar echargedeveni fi
tis
bel
owt hecostofproducti
on.
• Sal
esr
evenuemaximi
zati
on–somef i
rmsmaysetpricesatalowrange
soast
omaximizesal
esespeci
all
yift
heyseekanear
lyrecover
yofcash.
• To fulf
il
lsocialresponsi
bil
it
y– pr i
cing i
s a vi
talcomponentoft he
marketi
ngmi x.Prici
ngcanbeusedt oaddvaluet oaproduct.Pri
cing
al
soguar anteesthequalit
yoft heproduct.Somemar keter
ssayt hat
buyi
ngt hecheapestisnotalwaysthebestpoli
cybutyouhavet obuya
qual
ityproduct.
• Profi
tmar gi
n–t hisisprici
ngtomaximizeprof
itoneachunitsol
d.Thi
s
object
iveisseeninski mmingbasedont heassumpti
onthatbuyersar
e
sti
llpr
eparedtopur chasethegoodsdespit
ethehighpri
ce,f
orexample,
demandi sinel
asti
c.
• Riskmini
mizat
ion– fi
rmsi nt
heshor
trunmaysetpr
icest
omi
nimi
ze
ri
sksandmaximizesur
vival
.
• Tofailcompeti
ti
on–pr icesmaybesettomeetcompet i
ti
onort
odr
ive
outcompeti
ti
on,forexample,
useofpenet
rat
ionpr
ici
ng.
Pr
ici
ngSt
rat
egi
es

1.Cust
omer
-Or
ient
edPr
ici
ng

• Thi
sis pr
ici
ng based on demand f
ort
he pr
oductand cust
omer
s
 per
cept
ionont
heval
uer
athert
hant
hecost
sofpr
oduct
ion.
1.
1.Penet
rat
ionPr
ici
ngSt
rat
egy

• I
tiswherer
elati
vel
ylowpricesar
esetandst
rongpr
omot
iont
akespl
ace
i
nordert
oachievehighvol
umeofsales.
• Byint
roduci
ngt
hepr
oductatal
owpr
ice,
thef
ir
m canpenet
rat
edeepi
nto
themarket
.
• Asvol
umei
ncr
easest
hepr
icei
srai
sed.
• Thisst
rat
egycanonl
ybeusedi
nmar
ketsegment
swher
econsumer
sar
e
pri
cesensi
ti
ve.
• I
tcanal
sobeusedi
namar
ketwi
thst
if
fcompet
it
ion.
Advant
agesofPenet
rat
ionPr
ici
ngSt
rat
egy

• Lowpr
iceshel
pfi
ghtcompet
it
ion.
• I
tal
lowsf
orgr
owt
hofmar
ketshar
eduet
oincr
easedvol
umeofsal
es.
Di
sadvant
agesofPenet
rat
ionPr
ici
ngSt
rat
egy

• Itisonlysuit
abl
ewhent hefi
rm possesst
hecapacityforhi
ghsales
volumesandwhenal owpri
cegener
atessuf
fi
cientsal
est
ocompensate
forlowprof
itmar
gins.
• Ift
he pr oducthas a shortli
fe cycl
e,penet
rat
ion does notpr
ovi
de
suf
fi
cientti
met ocoverr
esearchanddevel
opmentcosts.
• Duet
olowpr
ices,
cust
omer
smi
ghtposi
ti
ont
hepr
oductasofl
owqual
it
y.
1.
2.Ski
mmi
ngPr
ici
ngSt
rat
egy

• Thi
si swher
ebyfi
rmschangehi
ghpr
icesf
orapr
oductatear
lyst
ages
andthenr
educei
twit
hti
me.
• Astheproductbecomesmoreacceptabl
eandvol
umeofsalesi
ncreases
thefi
rm wil
lbeabl
etobenef
itf
rom economi
esofscal
eandcantheref
ore
aff
ordtoreducepri
ces.
• I
tisusual
lyusedwhenfi
rmsar
esel
li
ngahi
ghl
ydi
ff
erent
iat
edpr
oduct
wit
hmanyuni quef
eat
ures.
• Thiscanbeusedinmarketsegmentswhereconsumer
sar
enotpr
ice
sensi
ti
ve(i
nel
asti
c)andareofhighqual
it
y.
Advant
agesofSki
mmi
ngPr
ici
ngSt
rat
egy
 • I
tal
lowsf
orear
lyr
ecover
yofr
esear
chanddevel
opmentcost
s.
• Ahighpr
ofi
tmar
ginoneachuni
tsol
dreducest
heneedt
osel
lal
arge
vol
ume.
• I
thelpsi
nproductposXSi
ti
oni
ngashi
ghpr
icesar
eusual
lyassoci
ated
wit
hquali
ty.
Di
sadvant
agesofSki
mmi
ngPr
ici
ngSt
rat
egy

• I
tcanl
eadt
opr
oductf
ail
ureasi
tcansuf
ferf
rom compet
it
ion.
• I
fconsumer
sar
eawareoft
hef
ir
m’ sstr
ategy,
theycandelaypur
chases
wai
ti
ngfort
het
imeswhent
heproductbecomescheaper.

1.
3.Per
cei
vedVal
uePr
ici
ng

• I
tisusedi
nmar
ket
swher
edemandi
sknownt
obei
nel
ast
ic.
• Iti
swhenthepri
cewil
lbechosentoposi
ti
ontheproducti
nthemar
ket
asqual
it
yisinf
ormal
lyassessedbyt
hepri
cecharged.
• Iti
simport
antt
ochar
geapr
icet
hati
sconsi
stentwi
tht
hei
mageoft
he
product
.
1.
4.Pr
iceDi
scr
imi
nat
ion

• Ift
hemar keti
ssegment
ed,
iti
spossi
blet
ochar
gedi
ff
erentpr
icest
o
dif
fer
entsegmentsoft
hemarket
.
• Thepri
cediscr
imi
natorwillchar
gehi
gherpr
icei
nasegmentwhere
demandisinel
ast
icbutreducethepr
icef
orthesegmentwher
edemand
i
selast
ic.
2.Cost
-BasedPr
ici
ng
 • Ther
earevari
ati
onsonthethemeofcost
-basedpr
ici
ng,buti
nessence,
it
i
nvol
vestheaddit
ionofapr
ofitel
ementt
othecostofpr
oducti
on.
• Thebasi
cideai
sthatfi
rmswil
lassesst
hei
rcost
speruni
tandt
henadd
anamountontopofthecal
cul
atedcost
s.
2.
1.Mar
kupPr
ici
ng

• Iti
susuall
yusedbyret
ail
erswhoaddaper
cent
agemar
kupont
hepr
ices
chargedbysuppl
ier
sorwholesal
ers.
• Thesizeofthemarkupdependsusuall
yuponacombinat
ionoffact
ors
suchaslevelofdemandforthepr
oduct,ageandst
ageofthepr
oductin
thel
if
ecycleandnumberofsupplier
s.
2.
2.Tar
getPr
ici
ng

• I
tiswherebyacompanydecidesuponapr
icet
hatwoul
dgi
vear
equi
red
r
ateofretur
natacer
tai
nlevelofout
put
.
2.
3.Ful
lCost
/Absor
pti
onCostPr
ici
ng

• Iti
swherebyacompanyatt
emptstocal
cul
ateauni
tcostf
ort
hepr
oduct
andthenaddanagr
eedprofi
tmargi
n.
Di
sadvant
agesofFul
lCostPr
ici
ng

• I
tignor
esdemandandt
hepr
iceel
ast
ici
tyofdemand.
• I
tignor
est
hecompet
it
ivesi
tuat
ion.
• Canr
esul
tinunder
pri
cingorover
pri
cing.
2.
4.Mar
ginalPr
ici
ng

• Iti
sapr i
cingmet
hodbasedonvar
iabl
ecost
sonl
yandi
gnor
esf
ixed
costs.
• Thisismainl
yusedi
nser
vicei
ndust
ri
eswhi
chsuf
ferf
rom dai
ly
fl
uctuat
ions.
3.Compet
it
orOr
ient
edPr
ici
ng

• Thepri
ceschargedar
eneit
herr
elat
edtocost
sofproducti
onnort
o
cust
omers’demandbutt
othepri
cechargedbycompeti
tors.
• Mostoft
hemarketi
ngmanager
schargepri
ceswhi
char
esl
ight
lyabove
orbel
owthepr
iceschar
gedbycompeti
tor
s.
• Wher
ether
eisst
if
fcompet
it
ion,
somef
ir
msmayengagei
npr
icewar
sin
 abi
dtosur
vivei
nthemar
ket
.
3.
1.Dest
royerPr
ici
ng

• Iti
saprici
ngstr
ategywher
ebyafi
rm embar
ksonaggr
essi
vepr
ice
cutt
ingsoastoeradi
cat
eri
val
s.
• N.B.:Penet
rat
ionpr
ici
ngcanal
sobement
ionedi
ncont
extofcompet
it
ion
-
orientedpr
ici
ng.
4.Psychol
ogi
calPr
ici
ng

• Iti
sapri
cingstr
ategyusedbyanorgani
zat
iontocapt
uret
hemi
ndsof
consumer
s,forexample,
$4.99i
nst
eadof$5.00.
• Cust
omer
smaybet
empt
edt
hatt
hepr
icesar
ereducedyett
heyar
enot
.
5.LossLeadi
ngPr
ici
ng

• Thisi
sast rat
egywherebyot
herproduct
saresoldatal
osssoasto
temptcustomersi
ntotheshopknowingthatpr
ofi
tswoul
dberecover
ed
ontheotherit
emsintheshop.
6.Economi
cPr
ici
ng

• Iti
swherebyverylowpr
icesarechargedf
orthepr
oduct
sinor
dert
o
coveradver
ti
singandmanufactur
ingcost
s.
• Someoft
hesepr
oduct
smaybesol
dasl
ossl
eader
s.
• I
tisusedi
nthedogst
age.
Pr
ici
ngPol
ici
es

SinglePricingPol
icy Fl
exibl
epr i
cingpol
icy
Thisinvolvesthechargi
ngofthesame Thisi
nvolvesthechar
gingofdif
ferent
pri
cef orthesamepr oducti
ndif
fer
ent pri
cesforthesameproductindif
ferent
mar ket. market
s.

Communi
cat
ionMi
x

• Itconsi
stsofabl
endoftechni
quesusedt
ocommuni
cat
ethepr
oduct
s
avail
abl
et ot
heconsumers.
• Iti
sacombinat
ionofwaysinwhi
chabusi
nesscommuni
cat
eswi
thi
ts
customer
sabouti
tsproduct
s.
• I
tisagr
oupofmet
hodsusedt
oinf
orm cust
omer
s.
Aspect
soft
heCommuni
cat
ionMi
xorPr
omot
ionalSt
rat
egi
es
 • Adver
ti
sing.
• Per
sonalsel
li
ng.
• Sal
espr
omot
ions.
• Publ
icr
elat
ions.
• Publ
ici
ty.
• Di
rectmai
li
ng.
• Mer
chandi
sing.
Fact
orst
obeconsi
der
edwhenchoosi
ngaPr
omot
ionalMi
x

• Nat
ureoft
hepr
oduct
.
• Mar
ketexpendi
tur
ebudget
.
• Theavai
labi
li
tyofopt
ions.
• Nat
ureoft
hemar
ketandi
tscust
omer
s.
• Theproductl
if
ecycle–thel
evelofsal
espromoti
onemployedwi
ll
dependonwhichstaget
heproductisati
nit
sli
fecycl
e.
Mar
ket
ingExpendi
tur
eBudget

• Iti
stheamountofmoneyabusi
nessal
locat
esonmar
ket
ingact
ivi
ti
es
suchaspromoti
on.
• Iti
sspecif
iedamountofmoneysetasi
det
opr
omot
etheor
gani
zat
ion’
s
product
.
• I
tiscr
eatedtoant
ici
pat
etheessent
ialcost
sassoci
atedi
nmai
ntai
ning
t
heproductandbr
andname.
Howt
oDet
ermi
neaPr
omot
ionalBudget

• Object
iveandt
askmethod–thi
siswhenacompanyset
sit
sbudget
basedonwhatitwant
stoachi
eveonpromot
ion.
• Competi
ti
vepar
it
ymet
hod–i
tisset
ti
ngabudgett
omat
chcompet
it
or
out
let
s.
• Percentageofsal
esmet hod–thebudgeti
ssetatacer
tai
nper
cent
age
ofcurrentandfor
ecast
ingsal
es.
• Affor
dablemet
hod–itisbasedonthel
evelofaf
fordabi
li
ty.Thi
sis
becauseacompanycannotspendmoreonadvert
isi
ngexpensesthan
theprof
iti
tmakes.
Adver
ti
sing

• Itr
efer
stoanyf orm ofpr
omoti
onofgoodsandser vi
cesbyanident
if
ied
sponsortoatargetandaudi
encewi
ththeobject
iveofpersuadi
ngand
i
nformingthecustomersaboutt
heproductavai
labl
e.
• I
tref
erst
oal
lfor
msofpr
omot
ionofgoodsandser
vices.
• Iti
snon-per
sona,
onewaycommuni cat
iont
opromot
ethesal
eofgoods
andservi
cesvi
apaid-
foradver
ti
sement
sinthemedi
a.
TypesofAdver
ti
sing

1.I
nfor
mat
iveAdver
ti
sing

• Communi cat
ingcust
omervalue,tel
li
ngt
hemar ketaboutanewpr
oduct,
expl
aini
nghowt heproductworksandsuggest
ingnewusesofaproduct.
• I
tisal
sousedt
oinf
ormt
hemar
ketofpr
icechangeset
c.
2.Per
suasi
veAdver
ti
sing

• Thisisusedtocr eatebrandpr
efer
ence,encouragi
ngcust
omerstoshi
ft
toyourbrand,persuadingcust
omerstopur chasenowandconvi
nci
ng
customerstotellother
saboutthebrand.
3.Remi
nderAdver
ti
sing

• Thisisusedtomai ntai
ncust
omerrelat
ionships,r
emindingcustomers
thattheproductmaybeneededi nt
henearf utur
e,remi
ndingcustomers
wher etobuytheproductandkeepi
ngthebrandi ncustomers’minds
duringtheoff-
seasons.
4.Gener
icAdver
ti
sing/
Col
lect
iveAdver
ti
sing

• Iti
susedbyanumberofproducersinthesameindust
rywhoj
oint
ly
adver
ti
seaproducti
ngener
alwithoutusingbr
andnames.
• Nocompet
it
ionamongpr
oducer
s.
Adver
ti
singBudget

• Thi
sisthemoneyandotherresour
cesal
locat
edt
oapr
oductora
company’
sadver
ti
singprogr
am.
Fact
orst
oConsi
derwhenPr
epar
inganAdver
ti
singBudget

• Thestageofthepr
oducti
ntheproductl
if
ecycl
e,forexampl
e,pr
oduct
s
ati
ntr
oducti
ontypi
cal
lyneedl
argeadvert
isi
ngbudget.
 • Marketshar
efir
mswi t
hlowmarketshar
eusual
lyr
equi
real
arge
adver
ti
singbudgett
ocoverup.
• Compet
it
orf
ir
mswi t
hmanycompet i
tor
sneedal
argeadver
ti
singbudget
tomat
chordobet
terthancompet
it
ors.
• Advert
isi
ngcluster–inhi
ghadvert
isi
ngcl
ust
ers,
thefi
rm mustadvert
ise
i
tsproductsheavil
ytobenot
icedhi
ghabovethenoi
seinthemarket.
• Undi
ff
erent
iatedpr
oduct
s–t hosesel
li
ngproduct
sthatresembl
eot
her
br
andsrequir
eheavyadver
ti
singbudgetst
osetthem apart
.
Adver
ti
singMedi
a

Medi
a Advant ages Di
sadvant
ages
• Tel
evi
sion Goodmass- mar keti
ng Hi
ghabsolut
ecost
s.
coverage.
Lowcostperexposur e Hi
ghclut
ter.
Combi nessight
, soundand Fl
eet
ingexposur
e.
motion.
Appealingtothesenses. Lessaudi enceselect
ively.
Shortli
fe.
Poorreproduct i
onqual i
ty.
• Newspaper Flexibili
ty. Shortli
fe.
Timel ess. Poorreproduct i
onqual i
ty.
Goodl ocalmar ketcover age. Somepeopl edonotlike
readi
ng.
Broadaccept abil
ity. Smallpassal ongaudience.
• Di
rectMail Highaudi encesel ecti
vely. Relat
ivelyhighcostsper
exposure
Allowsper sonali
zat i
on. Junkmai limage.
Flexibili
ty.
Nocompet it
ionwi ththe
samemedi um.
• Magazi
nes Hi ghgeogr aphicand Longpur chaseleadtime.
demogr aphicselect i
vit
y.
Credibili
tyandpr est i
ge. Highcost s.
Highqual it
yreproduct i
on. Noguar anteeofposition.
Goodpassal ongr eadership.
• Radi
o Goodl ocalaccept ance. Audioonl y.
Cheapert hantelevision. Fleet
ingexposur e.
Highgeogr aphicaland Lowat t
ent i
on.
demogr aphicselect i
vit
y.
Lowcost s.
Fact
orstobeConsi
deredwhenMaki ngaChoi ceontheAdver ti
singMedia
 • Ther
eachoft
hemedi
a.
• Thesel
ect
ivi
tyofmedi
a.
• Ther
elat
ivecost
sofadver
ti
sing.
• Thei
mpactoft
hemedi
a.
• Typeoft
hepr
oduct
.
• Theper
for
manceoft
headver
ti
sement
.
• Si
zeoft
hemar
ket
.
• Costofadver
ti
sing.
• Ef
fect
ivenessoft
hemedi
um.
• Ur
gency.
• Tar
get
edgr
oup.
• Nat
ureoft
hegoods.
Advant
agesofAdver
ti
sing

• I
tinf
ormscustomersaboutt
hepr
oduct
savai
labl
e,pr
icesoft
hepr
oduct
wheret
ogettheproduct
sandhowtogett
hem.
• I
tal
lowsconsumer
stomakemor
einf
ormedchoi
ces.
• I
tcanbeusedt
ofi
ghtcompet
it
ion.
• I
tguar
ant
eest
hequal
it
yoft
hepr
oduct
.
• I
tact
sasanai
dtopr
oducti
dent
if
icat
ion.
• I
tincr
easespr
ofi
ts.
• I
tincr
easessal
es.
• I
tper
suadescust
omer
stobuyt
hepr
oduct
.
• I
tcr
eat
esbr
andl
oyal
ty.
• Byhel
pingr
educesal
esf
luct
uat
ions,
itassi
stsi
npl
anni
ngpr
oduct
ion.
Di
sadvant
agesofAdver
ti
sing

• I
trai
sescost
sandt
her
efor
epr
ices.
• I
tisawast
eofr
esour
ces.
• I
trai
sest
hepr
icewi
thoutaddi
ngval
uet
othepr
oduct
.
 • Itper
suadespeopl
etoconsumeunnecessar
yandunwant
edgoodsand
servi
ces.
• Iti
soft
enusedasawayofmai
ntai
ningmonopol
ypowerpr
event
ingt
he
entr
yofnewfi
rms.
• I
tcanbemi
sleadi
ng.
• Adver
ti
singst
imul
ateswant
sthatcannotbesat
isf
ied.
• Theeconomi
esofscal
ear
enotpassedon.
Sal
esPr
omot
ions

• Thesear
eshort
-ter
mincenti
vesusedbytheorgani
zat
ionsot
hat
cust
omerswouldbeabletobuythei
rpr
oducts.
• Li
keadverti
sing,
iti
saform ofonedaycommuni
cat
ionbutunl
ike
adver
ti
sing,i
tdoesnoti
nvolveapaidmedi
um.
• Iti
sempl
oyedinasuppor
ti
ver
olet
otheot
hert
echni
quesof
communi
cati
ngwit
hcustomer
s.
• I
tisamet
hodof
:
• Devel
opi
ngt
hepr
oduct
/br
andi
mage.
• Enhanci
ngt
hepr
omot
ionalact
ivi
ti
esunder
takenbydi
str
ibut
ors.
• Rei
nfor
cingadver
ti
singandsel
li
ngmessages.
• Ai
dingr
ecogni
ti
on.
• At
tr
act
ingat
tent
ion.
• Encour
agi
ngconsumer
stot
ryt
hepr
oduct
s.
Exampl
esofSal
esPr
omot
ionsTool
s

• Sampl
es.
• Coupons.
• Cashr
efunds.
• Demonst
rat
ions.
• Poi
ntofpur
chasedi
spl
ays.
• Cont
est
s.
• Pr
emi
ums.
Sal
espr
omot
ionsar
eusedi
nor
dert
o:

• Encour
agepur
chases(
fi
rstandr
epeatpur
chases)
.
• I
ntr
oducenewpr
oduct
s.
• Chal
lengecompet
it
ion.
• Boastsal
esofapr
oduct
.
• Communi
cat
ewi
thcust
omer
sasanal
ter
nat
ivet
omedi
aadver
ti
sing.
Di
sadvant
agesofSal
esPr
omot
ions

• Itcanencouragecustomerst
obecherr
ypickerswhi
chmeanst
heyonl
y
buyproductsthroughoff
ersl
eadi
ngtotheerosi
onofbr
andi
mage.
• I
tdoesnotbr
ingpr
efer
enceandl
oyal
ty.
• Itcandemeant heproduct
’si
mageifusedcarel
essly.Theref
ore,some
wor kersthi
nkofsal
espromoti
onsasatoolofbreakingbrandloyalt
yand
adver t
isi
ngasatoolofbui
ldi
ngbrandl
oyal
ty.
Publ
icRel
ati
ons(
PR)

• Thisi
nvolvesbuil
dinggoodr el
ationswiththecompany’svari
ouspubl
ics
byobtai
ningfavorabl
epublicit
y,buil
dingagoodcor por
ateimageand
handl
ingorheadingofffavorablerumors,stor
iesandevents.
• Thepubl
icr
elat
ionsdepar
tmentper
for
mst
hef
oll
owi
ng:
• Pr
essr
elat
ionsorpr
essagency.
• Pr
oductpubl
ici
ty–publ
ishi
ngspeci
fi
cpr
oduct
s.
• Lobbyi
ng–buil
dingandmai
ntai
ningnat
ionalr
elat
ionwi
thl
egi
slat
ion
andgover
nment.
• I
nvest
orr
elat
ions.
Advant
agesofPubl
icRel
ati
ons

• Publ
icr
elat
ionshaveast
rongi
mpactatl
owercostt
hanadver
ti
sing.
• Thecompanydoesnotpayf
ort
hespaceort
imeonmedi
a.
• I
thasmor
ecr
edi
bil
it
ythanadver
ti
sing.
Di
sadvant
agesofPubl
icRel
ati
ons

• Toagreat
erextent
,ithasbeenmismanaged,
li
mit
edanditsuseis
scat
ter
edleadi
ngtoitbeingref
err
edt
oasamar ket
ingst
epchil
d.
Per
sonalSel
li
ng

• Thi
sispersonal
present
ati
onsbyt
hefi
rm’ssalesforcef
ort
hepur
poseof
makingsal
esandbuildi
ngcust
omerr
elat
ionships.
• Operat
ingatt
hepointofsal
e,i
tpushest
hepr
oductbyemphasi
zingi
ts
usesandadvant
ages.
• I
tinvol
vest
wowaycommuni
cat
ion.
• Sal
esst
affcanengagei
n:
• Obt
aini
ngor
der
s.
• Of
fer
ingadvi
ceandgui
dance.
• Handl
ingcompl
aint
s.
• Est
abl
ishi
ngcr
edi
twor
thi
ness.
• Di
ssemi
nat
ionofi
nfor
mat
ion.
• Gi
vingt
alksandpr
esent
ati
ons.
Di
rectMar
ket
ing

• Dir
ectconnect
ionswit
hcareful
lyt
arget
edindivi
dualconsumer
sbot
h
obtai
nanimmedi at
eresponseandcult
ivat
elast
ingcustomer
rel
ati
onshi
ps.
• Thisi
ncludestheuseofdirectmai
l,
thet
elephone,
dir
ectr
esponse,
tel
evi
sion,email
,thei
nter
net.
Advant
agesofDi
rectMar
ket
ing

• Forbuyer
s,i
tisconveni
ent
,easyandpr
ivat
e.
• I
tisi
nter
act
iveandi
mmedi
ate.
• Forsel
ler
s,i
tisapower
fult
oolf
orbui
ldi
ngcust
omerr
elat
ionshi
ps.
• I
tof
fer
ssell
ersal
owcost
,ef
fi
cientandspeedyal
ter
nat
ivef
orr
eachi
ng
t
hei
rmarket
s.
Pl
ace

Channelofdi
str
ibut
ion

• Refer
stoal
lthest
agesinanorgani
zat
iont
hroughwhi
chapr
oductmust
passbet
weentheproducerandt
heenduser.
• Thel
engt
hoft
hechanneldependsont
henumberofi
nter
medi
ari
es.
 • Thei
nter
medi
ari
escanbeagent
s,whol
esal
ers,
ret
ail
ers.
Agent
s

• Anagentwor
ksonbehal
fofanot
herf
ir
mtoper
for
m cer
tai
nspeci
fi
ed
ser
vices.
Whol
esal
ers

• Awholesalerbuysgoodsforr
esal
etosomeoneot herthant
heeventual
consumer.Wholesaler
ssuppl
ygoodstoret
ail
ersortomanufact
uring
fi
rmswhowi l
lusethegoodsi
ntheproduct
ionprocess.
• Thetr
adi
ti
onalf
uncti
onofawholesaleri
stobreakdownbul k
consi
gnment
sintosmal
lerquant
it
iessui
tabl
eforindi
vidualr
etai
ler
s.
Funct
ionsofWhol
esal
ers

• Br
eaki
ngbul
k.
• Theypr
ovi
dest
oragef
aci
li
ti
es.
• Theyevenouti
rr
egul
arf
lowsofgoods.
• Bytaki
nggoodsof
fthei
rhands,
whol
esal
ersi
mpr
ovet
hemanuf
act
urer
’s
cashfl
ows.
• Whol
esal
ersal
soshoul
dersomeoft
hemar
ket
ingr
isksoft
hepr
oducer
.
• Whol
esal
erscanpr
ovi
decr
edi
tfaci
li
ti
esandot
herser
vicest
oret
ail
ers.
Ret
ail
ers

• Theret
ail
erbuysgoodsfr
om thewhol
esal
ersf
orsal
etot
hepubl
ici
n
shopsandotherr
etai
lout
let
s.
Ret
ail
erspr
ovi
de:

• Avar
iet
yofgoodsf
rom whi
chachoi
cecanbemade.
• Aconveni
entser
vice.
• I
nfor
mat
ionandadvi
cet
oconsumer
s.
• Del
iver
yofgoodswher
eappr
opr
iat
e.
• Cr
edi
twher
eappr
opr
iat
e.
• Packi
ng.
• Mar
keti
nfor
mat
ionf
ormanuf
act
urer
s.
ChannelRout
es

1.Di
rectMar
ket
ing(
from pr
oducert
oconsumer
)

• Apartf
rom i
ndust
ri
almarket
s,t
hisrout
ecanbeempl oyedbyspeci
ali
st
mailor
dermanufact
urer
sandfactoryf
arm shops.
2.Manuf
act
urer→ Ret
ail
er→ Consumer

• Theri
seoflargesuper
mar ketchai
nshasreducedtheimpor
tanceoft
he
i
ndependentwholesal
er.Theretai
lchai
nsareabl
etodealdi
rectl
ywit
h
themanufact
urer
sandunder takethei
rownwholesal
efunct
ions.
Reasonsf
ort
heEl
imi
nat
ionoft
heWhol
esal
er

• Bulkbuyi
ngbylargescal
eret
ail
erssuchashyper
marketsand
depart
mentalst
oreswit
hadequatecapi
tal
,owncapi
taland
warehouses.
• I
tischeapert
obuyf
rom t
hemanuf
act
urer
.
• Somegoodsar
efr
agi
leandt
heyneedspeci
alhandl
ing.
• Somegoodsar
eper
ishabl
esandr
equi
respeed.
• Somemanuf
act
urer
shaveopenedt
hei
rret
ailshops,
forexampl
e,
Bat
a.
3.Manuf
act
urer→ Whol
esal
er→ Ret
ail
er→ Consumer

• Thisi
st het
radi
ti
onalchanneli
nconsumer s’goodsmar
ket
s.Smal
l
ret
ail
ersdependonwholesaler
sforsuppl
iers.
4.Manuf
act
urer→ Agent→ Whol
esal
er→ Ret
ail
er→ Consumer

• Agent
sar
eusual
lycommoni
nthei
mpor
t-
expor
tmar
ket
.
5.Manuf
act
urer→ Agent→ Consumer

• Inthi
srout
e,themanufacturerusest
heservicesofanagenttosellthe
goodsdir
ecttothepubl
ic.Theagentactsonbehalfofthemanufact ur
er
whointurnexerci
sesconsiderabl
econt
rolovertheagent
s’acti
vit
ies.
I
ntensi
veDi
str
ibut
ion

• Aproducerthatwishestoensuret
hemaxi
mum possi
blenumberof
st
ockist
sforitsgoodsissaidtobepur
sui
ngani
ntensi
vesyst
em of
marketi
ng.
Sel
ect
iveDi
str
ibut
ion
 • Ift
heproducerdel
iber
atel
yrest
ri
ctst
henumberofst
ocki
sts,
iti
ssai
dto
besel
ecti
ve.
• I
tcanbecall
edexcl
usi
vei
fthepol
icyi
stor
est
ri
ctsal
est
oasi
ngl
e
r
etai
leri
neachar
ea.
Fact
orst
oConsi
derwhenSel
ect
ingaDi
str
ibut
ionChannel

1.Pr
oductFact
ors

1.
1.Uni
tval
ue

• Iftheproducti
ssuchthatt
hemar kupi
slowandt heunitcostoft
he
productistoohight
obeabletowithst
andalongdistr
ibuti
onchannel
,the
producersmaywantt odi
str
ibut
etheproductdi
rect
lytoconsumers.
1.
2.Nat
ureoft
hepr
oduct

• Whentheproducti
speri
shabl
e,subjectt
ofr
equentf
ashi
onchange,
the
manuf
actur
erstendtouseshortchannel
s.
1.
3.Thet
echni
calnat
ureoft
hepr
oduct

• Whenaproductrequi
resagr
eatdealofpre-
sal
eandpost-sal
eser
vices
t
hendir
ectsel
li
ngwoul dbemoreeff
ecti
vethandependi
ngon
whol
esal
ers.
2.Mar
ketFact
ors

2.
1.Numberofpot
ent
ialcust
omer

• Whenani ndustr
ialmarketconsi
stsofasmal
lnumberofpotent
ial
customers,t
hemanuf actur
ermayusehisownsalesf
orcetosaledir
ect
ly
totheindust
ri
alusers.
2.
2.Geogr
aphi
calconcent
rat
ionoft
hemar
ket

• Manuf act
urersofindust
ri
alproduct
susual
lysuppl
yfactor
iesand
workshopsdi r
ectl
ybecausetheytendt
obeconcentrat
edinaf ew
geographicalar
eas.
2.
3.Or
dersi
ze

• Largefoodmanufact
urer
swoul
dsel
ldi
rectl
ytoret
ail
ersbecauset
he
l
argeordersi
zeandhugevol
umeofbusinessmakethemet hodof
di
stri
buti
oneconomical
.
3.CompanyFact
ors
 3.
1.Fi
nanci
alst
rengt
h

• Abusinesswit
hadequat
efi
nancecanmaint
ainit
sownsal
esf
orce,
trai
n
i
tadequatel
yandsel
ldir
ect
lyt
otheconsumers.
• Afi
nanciall
yweakf
ir
m woul
dhavet
odependont
hemi
ddl
emanf
ort
hei
r
ser
vices.
3.
2.Mar
ketabi
li
tyoft
hemanagement

• Whent hemanagementofacompanyhasdevel
opedit
sownmar keti
ng
abil
it
ies,itcandi
recti
tsownmar
keti
ngact
ivi
ti
esrat
herthandependon
themi ddleman.
3.
3.Desi
ret
ocont
rol

• Somepr oducer
sfeelt
hatt
heycanachievemorebypromoti
on,bet
ter
contr
olofthequal
it
yandretai
lpr
icesofthei
rgoodst
hanift
heyusea
middleman.
Mar
ket
ingSt
rat
egy

• Thi
sisthemarketi
nglogicbywhi
cht
hebusi
nessuni
thopest
oachi
eve
i
tsmarket
ingobject
ives.
• Iti
sacoordi
nat
edplanofactiontoident
if
y,ant
ici
pat
eandsat i
sfy
consumerdemandandachievingthecompany’
sobject
ives.
Mar
ket
ingTact
ics

• Referstotool
sandtechniquesbywhi chthemar ketingdepart
mentwil
l
seektoachieveit
sobject
ive,hence,adver
ti
sing,salespromotion,
personalsel
li
ngandpublici
tyareregardedast act
icsoractivi
ti
eswit
hin
theoveral
lstr
ategy.
Mar
ket
ingPl
an

• Iti
saplanwhichf
ocusesonapar t
icul
arproductorstr
ategi
esand
progr
amsforachi
evi
ngproductobject
ivesi
nthemar ket.
Di
ff
erencesbet
weenaMar
ket
ingSt
rat
egyandMar
ket
ingTact
ic

Mar ketingSt r
ategy Mar keti
ngTact i
c
Thesear ebroadstatementsofacti
ont o Thesear ethemet hodsusedbythe
bet akent oachievethebusiness organizati
ontoachieveit
sshort
-ter
m
objectives. objecti
ves.
Thesear eallt
hemet hodsusedto Compr iseofdetail
edstat
ementsofwhat
achievel ong-t
erm market
ingobject
ives. i
st obeachi eved.
St
rat
egi
cTool
s

TheBost
onMat
ri
xbyBost
onConsul
ti
ngGr
oup(
B.C.
G)

• Thi
sisagridshowingthemarketshareofaproductplot
tedont
he
hor
izont
alaxi
swiththemarketgrowthonthevert
icalaxi
s.
• Pr
oduct
swi
thi
naf
ir
m’spr
oductmi
xcanbecl
assi
fi
edi
nter
msoff
our
gr
oups.
• Mar
ketgr
owt
hrat
epr
ovi
desameasur
eofmar
ketat
tr
act
iveness.
• Rel
ativemar
ketshar
eser
vesasameasur
eofcompanyst
rengt
hint
he
market.
• I
tshowst
hegener
ati
onofcashwi
thi
ntheor
gani
zat
ion.
Hi
ghMar
ketGr
owt
h LowMar
ketGr
owt
h
HighMar
ket
Mar
ketPenet
rat
ion Pr
oductDevel
opment
Share
Mar
ketDevel
opment Di
ver
sif
icat
ion LowMarketShar
e

Quest
ionMar
ks/
Probl
em Chi
ld/
Wil
dCat

• Thesear
epr
oduct
swi
thasmal
lmar
ketshar
ebutwi
thhi
ghgr
owt
hrat
e.

• Anewpr
oductst
art
sfr
om t
hisquadr
antandt
hei
rfut
urei
suncer
tai
n.

• Toincreaset
hemarketshar
e,cashinj
ect
ioncoupl
edwi
thapl
annedand
coordi
natedmar
ket
ingeffor
tisessent
ial
.

• Ther
eisl
owmar
ketshar
ebecauset
hepr
oducti
snewi
nthemar
ket
.

• Ifrel
atedt
othepr
oductl
if
ecycl
e,t
hesepr
oduct
sar
eint
hei
ntr
oduct
ion
stage.
St
ars

• Thesearepr
oductswi
thhi
ghmarketshareandgrowt
handt
hepr
oduct
s
havebeengraduat
edf
rom bei
ngquest
ionmarks.
• Whenapr oductbecomesast
ar,
manycust
omersar
enowawareofthe
product
’savai
labi
li
tyl
eadi
ngt
oahighdemandandi
ncr
easei
nmarket
share.
• Thepr
omot
ionalexpendi
tur
eal
soneedst
ober
educed.
• Thi
smat
cheswi
tht
hegr
owt
hrat
eont
hepr
oductl
if
ecycl
e.
CashCows

• Itisaproductwithal
owgr
owt
hrat
ebuthi
ghmar
ketshar
easar
esul
tof
highlevelofst
ars.
• Whenapr oductisacashcow, i
thasgraduatedfr
om beingastarand
theseareproduct
sandbusinessunit
swhi chgenerat
emor ecashinthe
organi
zati
onusedt opaycompanybill
sandsuppor tdogs,st
arsand
questi
onmar kswhicharecashhungry.
Dogs

• Thesear
epr
oduct
swi
thl
owmar
ketshar
eandl
owgr
owt
hrat
e.
• Themarketshar
ewil
lbedecl
ini
ngasaresul
tofreduct
ioni
nsal
esand
demandcausedbydemandchangesandpoorquali
ty.
• Thecont
inuoussur
vivalofdogsi
sfundedbyt
hecashcows.
• Theorgani
zati
onwil
lchooseei
thert
oel
imi
nat
eort
oext
endt
hel
if
ecycl
e
ofsuchproduct
s.
• Thesepr
oduct
scanbesol
dasl
ossl
eader
s.
• Theyar
eli
keanol
ddogwhi
chcannei
therbar
knorbi
te.
I
mpor
tanceoft
heBost
onMat
ri
x

• Ithel
pstheorganizati
ontoident
if
yproduct
swhi
chneedmassi
ve
promoti
onalstr
ategies,f
orexample,
questi
onmar
ksanddogs.
• I
tanal
yzespr
oduct
sinr
elat
iont
othei
rst
agesi
nthepr
oductl
if
ecycl
e.
• I
tgi
vestheorgani
zat
iont
hepl
atf
orm onwhi
cht
omakedeci
sionsabout
t
heproduct
.
• I
tcanbeusedasat
oolf
orpr
oductposi
ti
oni
ng.
• I
tcanbeusedt
oshowt
hegener
ati
onofcashi
ntheor
gani
zat
ion.
• Itcanbeusedasafor
ecastwi
tht
heneedt
odevel
opanot
hernew
productsoast
orepl
acedogs.
• Itcanbeusedasapoint
erofdi
ver
sif
icat
ioni
fmostoft
hepr
oduct
sint
he
portf
oli
oaref
ail
ing.
• I
tcanbeusedasamar
ket
ingst
rat
egy.
• I
thel
psaf
ir
m mai
ntai
nabal
ancedpr
oductmi
x.
Li
mit
ati
onsoft
heBost
onMat
ri
x
 • I
tismor
etheor
eti
calt
hanpr
act
ical
.
• Itcannotworkinassoci
ati
onbutitneedst
obesupportedwi
tht
he
productli
fecycl
etoshowt hechangesinmar
ketshar
eandgrowth.
• I
tdemandshi
ghl
evelofexper
ti
se.
• Somepr
oduct
sdonotf
oll
owt
hemat
ri
xbecauseofanumberofr
easons.
• Product
sdonotr
eachamaxi
mum demandasr
efl
ect
edbyt
hecash
cows.
Ansof
fMat
ri
x

• Pr
oducti
sthecor
ner
stoneofal
lbusi
nessst
rat
egi
es.

Existi
ngPr oduct NewProduct
Mar ketPenetrat
ion Pr
oductDevelopment Exi
sti
ngMarket
MarketDevelopment Diver
sif
icati
on NewMarket

1.Mar
ketPenet
rat
ion

• Thi
sinvol
vest
hesel
li
ngofanexi
sti
ngpr
oductt
oanexi
sti
ngmar
ket
.
2.Mar
ketDevel
opment

• Thi
sinvol
vest
hesel
li
ngofanexi
sti
ngpr
oductt
oanewmar
ket
.
• Thi
sinvol
vesexpor
ti
ngandgeogr
aphi
calexpansi
on.
3.Pr
oductDevel
opment

• Thi
sinvol
vessel
li
nganewpr
oductt
oanexi
sti
ngmar
ket
.
• Thi
sinvol
vespackagi
ngi
mpr
ovement
s,r
ebr
andi
ngandpr
oduct
 r
ejuvenat
ion.
4.Di
ver
sif
icat
ion

• Thi
sinvol
vest
hesel
li
ngofanewpr
oductt
oanewmar
ket
.
• Thisinvol
vesprocessessuchasmer
ger
s,t
akeover
s,j
ointvent
uresand
businessacqui
sit
ions.
Por
ter
’sGener
icSt
rat
egi
es

• Accordi
ngtoMichaelPor t
er,
therear ethreegener
icstr
ategi
eswhichcan
beusedbyanor ganizat
iontoout-compet ethecompetit
orsandthesear
e
pr
oductdif
fer
entiat
ion,pri
ce/costleadershipandfocusmarket(
niche
market)
.
• Price/
costl
eadership–thef
ir
m’sobj
ecti
veistoachi
evel
owercost
s
producti
oninal
laspectssot
hati
toff
ersproduct
satl
owerpr
ices
thanthei
rcompetit
ors.
• Pr
oductdi
ff
erent
iat
ion–iti
stheof
fer
ingofhi
ghl
ydi
ff
erent
iat
ed
pr
oduct
swithuni
quefeat
ures.
• Focus(
niche)market–theorgani
zati
onf
ocusit
sef
for
tonser
ving
fewmarketsegmentsr
athert
hangoingaf
tert
hewhol
emarket
.
Por
ter
’sFi
veCompet
it
iveFor
ces

• Jockeyi
ngr
ival
ry.
• Thr
eatofsubst
it
utes.
• Thr
eatofnewent
rant
s.
• Bar
gai
ningpowerofbuyer
s.
• Bar
gai
ningpowerofsuppl
ier
s.
Pr
oductDi
ff
erent
iat
ion

• Iti
sthewaysel
ler
str
ytomaket
hei
rpr
oductl
ookdi
ff
erentf
rom each
other
.
• I
tisenhancedbypr
ici
ngandadver
ti
sing.
• I
tcanber
ealori
magi
nar
y.
Pr
oductMi
x

• Aproductli
neisagr
oupofproductst
hatareclosel
yrel
atedi
nthatthey
havesi
milarchar
act
eri
sti
cs,
simil
arusesoraresoldtot
hesamet ypeof
 cust
omer
s.
• Theproductmixofapar
ti
cul
arbusi
nessi
sacombi
nat
ionofal
lit
s
productl
ines.
• I
tist
hesum ofal
lthedi
ff
erentpr
oduct
swi
thmodelandsi
zevar
iat
ions.
Tar
getMar
ket
ing

• Iti
swhenthefir
m decidest
oser
veasetofbuyer
sshar
ingcommon
needsorchar
acter
ist
ics.
• Targetmarket
ingpr
ovi
desgoodstoaspeci
fi
cgr
oupofpeopl
e,f
or
example,
womeni nacit
y,ki
dsint
heareaorwor
kingcl
assmen.
• Becausebuyer
shaveuni
queneedsandwants,
asel
lercoul
dpat
ient
ly
vi
eweachbuyerasaseparat
etar
getmarket
.
• At ar
getmarketi
sagroupofconsumer
smostl i
kel
ytouseacompany’
s
product
.Theseconsumershavesi
mil
arint
erest
sorhobbi
es,
bel
ief
sand
usagepatt
erns.
Advant
agesofTar
getMar
ket
ing

• Mar
ket
erscanbet
termat
chmar
ket
ingst
rat
egi
eswi
thcor
ecust
omer
s.
• I
ttakesaconsi
der
abl
eamountoft
imet
oident
if
yandt
argetcust
omer
s.
• I
tleadst
oident
if
icat
ionofni
chemar
ket
s.
• I
tal
lowst
heor
gani
zat
iont
obehi
ghl
ycompet
it
ive.
• Thefirm wi
llbeabl
etodevel
opt
hepr
oduct
swhi
chmeett
hecust
omer
s’
requi
rements.
Di
sadvant
agesofTar
getMar
ket
ing

• I
tisexpensi
ve;compani
esspendal
otofmoneyt
hroughpr
imar
y
r
esearch.
• I
tisti
me-consuming;t
argetmar
ket
ingr
equi
resmor
eti
met
oident
if
ya
t
argetaudi
ence.
• I
tmayr
esul
tinomi
ssi
onofot
hercust
omer
s.
• Thereareethi
calconsider
ati
onstoconsi
derwi t
htargetmarket
ing.I
tmay
beexploit
ati
vetosomedegr ee,
forexample,
asmal lbeercompanymay
tar
getlesseducated,
poorpeoplewithl
argesizedbottl
es.
MassMar
ket
ing(
Undi
ff
erent
iat
edMar
ket
ing)
 • Thisi
samar ket
ingcover
agestrat
egyi
nwhichaf
ir
m decidest
oignor
e
marketsegment
sdiff
erencesandgoaft
ert
hewholemarketwi
thone
off
er.
• Itcanmeanadver
ti
singorpr
omot
ionofpr
oduct
stoal
argenumberof
customer
s.
• Iti
gnorest
heexist
enceofsegment
sandof
fer
sasi
ngl
emi
xtot
he
heter
ogeneousmarket
.
Advant
agesofMassMar
ket
ing

• Maxi
mizesi
ncome.
• Al
lowsbr
andst
obeusedt
othei
rful
lval
ue.
• I
tfocusesonhi
ghsal
esandl
owcost
s.
• Iti
seasi
ertoorgani
zeandcont
rolr
athert
hanset
ti
ngpr
oduct
stosui
t
dif
fer
entsegments.
• I
tfaci
l
itat
eschoi
cemaxi
mizat
ion.
• I
tel
imi
nat
esshor
tagest
her
ebycust
omerl
oyal
ty.
• Reducespr
oduct
ioncostperuni
t.
Di
sadvant
agesofMassMar
ket
ing

• Ther
eisl
imi
tedmar
ketor
ient
ati
onofgoodst
othemar
ket
.
• Highdevelopmentcost
soft
hepr
oductasi
twi
llbesol
dtodi
ff
erent
customers.
• Hi
ghl
evel
sofcompet
it
ion.
• Fai
lur
emi
ghtl
eadt
owast
agesofr
esour
cesandl
ossofsal
es.
Ni
cheMar
ket
ing(
Concent
rat
edMar
ket
ing)

• Amarketcover
agest
rat
egyinwhichaf
ir
m goesaf
teral
argeshar
eof
oneorafewsegment
sorniches.
• Apar
ti
cul
arsegmenti
star
get
ed.
Advant
agesofNi
cheMar
ket
ing

• Lesscompet
it
ionast
heyar
esmal
landat
tr
actl
esscompet
it
ors.
• Br
andl
oyal
tyi
ncr
eases.
• I
tincr
easesbusi
nessi
ncome.
 • Ithel
psafir
m achi
evest
rongmarketposi
ti
onbecauseofi
tsgr
eat
er
knowledgeofcust
omerneeds.
• I
tcanmar
ketef
fect
ivel
ybyf
inet
uni
ngi
tspr
oduct
s’pr
ices.
• Itcanalsomar keteff
ici
ent
ly,t
arget
ingi
tsproduct
s,pr
ices,channel
sand
communi cati
onpr ogramstowardsconsumers.I
tcanservebestand
profi
tabi
li
ty.
• Cost
sreduct
ionst
rat
egi
es.
Di
sadvant
agesofNi
cheMar
ket
ing

• I
fthesegmentt
urnssour
,thef
ir
m suf
fer
sgr
eat
ly.
• Largecompet
it
orsmaydeci
det
oent
ert
hesamesegmentwi
thgr
eat
er
resour
ces.
• Thef
ir
m mayf
ailt
opr
oper
lysegmentt
hemar
ket
.
• Lar
gepr
iceswhi
chi
scompl
exandr
equi
reexpor
ts.
Mar
ketSegment
ati
on

• Iti
sdivi
dingamar keti
ntosmall
ergr
oupswi t
hdist
inctneeds,
charact
eri
sti
csorbehavior
s,whichmightr
equir
eseparateproduct
sor
marketi
ngmi xes.
• I
tmeansdi
vidi
ngthehet
erogeneousmar keti
ntosubset
sorcust
omer
s
t
hatar
ehomogenousorhavesimilarcharact
eri
sti
cs.
• Mar
ketsegment
ati
onwor
ksbesti
fthemar
ket
sar
esust
ainabl
e.
• Thesei
ncludedemogr
aphi
c,geogr
aphi
c,psychol
ogi
calandbehavi
oral
var
iabl
es.
Geogr
aphi
cSegment
ati
on

• Thisi
sdividingamarketi
ntodi
ffer
entgeogr
aphi
cuni
tssuchasnat
ions,
rel
igi
ons,cit
iesornei
ghbor
hoods.
• Itassumest hatpeopl
eindiff
erentgeogr
aphi
call
ocat
ionspor
trayorhave
diff
erentneedsandwant s.
• Forexample,
peopl
eint
heChi
manimanir
ockyareasrequi
rehar
d
sur
facedshoescompar
edt
othosei
ntheflatar
eas.
Demogr
aphi
cSegment
ati
on

• Thi
sisdi
vidi
ngamar
keti
ntogr
oupsbasedonvar
iabl
essuchasage,
 gender,
famil
ysize,
famil
yli
fecycl
e,i
ncome,occupat
ion,educat
ion,
generat
ionandnati
onal
it
y,t
hatis,
popul
ati
oncharact
erist
ics.
GenderSegment
ati
on

• Thi
sisdi
vidi
ngamar
ketint
odiff
erentgroupsbasedongender.Thi
shas
l
ongbeenusedi
ncl
othi
ng,cosmetics,
magazinesandtoi
let
ri
es.
I
ncomeSegment
ati
on

• Thi
shasbeenlongusedi
naut
omobi
les,
clot
hing,
cosmet
ics,
financi
al
ser
vicesandt
ravel
.
• Manycompaniest ar
getaf
fl
uentconsumer
swi
thl
uxur
ygoodsand
conveni
entser
vices.
• Fi
rmscancr
eat
ethedol
larst
oresf
orl
owi
ncomeear
ner
s.
Psychol
ogi
calSegment
ati
on

• Thi
sisdivi
dingamarketi
ntodif
fer
entgroupsbasedonsoci
alcl
ass,
l
if
estyl
eorpersonal
it
ychar
acter
ist
ics.
• Thesear
etodowi
thsoci
alcl
asses,
li
fest
yleandper
sonal
it
y.
• Soci
alcl
assescanbedividedint
odiff
erentt
ypesofgr
oupssuchas
hi
ghermanageri
al,
forexample,di
rect
ors,mi
ddlemanager
ial
,forexampl
e,
manager
sandlowerclass.
• Li
fest
yle–achi
ever
s,st
ri
ver
s,sur
vivor
s.
• Per
sonal
it
y–compul
sive,
gregar
ious,
aut
hor
it
ari
an,
ambi
ti
ous.
Behavi
oralSegment
ati
on

• Thisi
sdivi
dingamarketi
ntodif
fer
entgr
oupsbasedonconsumer
knowl
edge,att
it
ude,
useorresponsetoapr
oduct.
Occasi
onalSegment
ati
on

• Thi
sisdi
vidi
ngamar
keti
ntodi
ff
erentgr
oupsaccor
dingt
ooccasi
ons.
• Whenbuyersgett
heideatobuy,theyact
uall
ymakethei
rpur
chasesf
or
useofthepur
chasedproduct
,forexampl
e,eggsar
emostconsumedat
breakf
ast
.
Benef
itSoughtSegment
ati
on

• Thisisdivi
dingt
hemarketi
ntogroupsaccor
dingt
odi
ff
erentbenef
it
s
thatconsumersseekf
rom t
heproduct.
 • Thisrequir
esfindi
ngthemajorbenefi
tspeopl
elookfori
ntheproduct
class,t
hekindsofpeoplewholookforeachbenefi
tandmajorbrands
thatdeli
vereachbenefi
t.
N.
B.:Tar
get
ingsegment
s:Thef
ir
m canuse:

• Undi
ff
erent
iat
edmar
ket
ing.
• Di
ff
erent
iat
edsegment
ing.
• Concent
rat
edmar
ket
ing.
• Mi
cromar
ket
ing.
Advant
agesofMar
ketSegment
ati
on

• Itreducesproductfail
ure.I
thel
pstheorgani
zati
onindesi
gningan
appr opri
atemarketi
ngmi xfort
hegroupofconsumersandthe
organizati
onwillhaveanassumptionthatt
heproducti
sgoingtobe
accept ed.
• Itr
educescostsinvolvedinmarket
ingproduct
s.Thi
smeansi nsteadof
designi
ngamar keti
ngmi xfort
hewholepopulati
on,f
inanci
alresources
canbechanneledtowar dsaselect
edgroupofconsumersratherthanto
thewholepopulati
on.
• Ithelpstheor gani
zat
iontokeepintouchwit
hanychangesinconsumer
preferences.Thecompanyi sabl
etodesignanappropr
iat
emarketi
ng
mix.Thi shelpstodesignmarket
ingstrat
egi
esort
acti
csthatmeeta
specificgroupofconsumers.
• I
tenablestheorganizat
iont
omi ni
mi zeresour
cewast age.Bysegment i
ng,
t
hemar ketresour
cesareusedaccor dingl
ydependingont hesegment s
t
hattheorganizat
ionisdeal
ingwith,forexample,abusinesscandi
r ect
r
esourcestoonesegmentonl y,
insteadofmaki ngtheproductavai
lable
t
oeveryone.
• Ithel
psi
nimprovi
ngthecorporat
eimageoft heorganizati
on.Thi
smeans
bysegment
ingthemarket
,thebusinessisablet
osat i
sfyconsumer
needsandwantsbydevel
opinganappr opr
iat
eproduct .
• I
tincr
easestheorganizat
ionalcompet
it
iveadvant
ageoverit
sri
val
s.I
tis
acompetit
ivest
rategywhichcanbeusedt ofi
ghtcompeti
ti
onfr
om ri
val
s
t
hroughsegmentation.
• Businesscandefi
nethei
rmarketspr
eci
sel
yanddesi
gngoodst
hatf
ocus
ontargetedgr
oupsofconsumers.
 • I
thelpsincr
easebrandl
oyalt
y.Thebr
andsoft
hecompanyar
epr
efer
red
morethanthebrandsofr
ival
s.
• Smallfi
rmsthatmaynotbeabl
etocompet
eint
hewhol
emar
ketar
eabl
e
tospeci
ali
zeinoneort
wosegments.
• Product
sar
etai
lor
edtomeetdemands,t
hati
s,i
tiseasytoest
imat
e
demandsofapart
icul
arsegmentt
hant
hewholemarket.
• I
tfaci
l
itat
est
hei
dent
if
icat
ionofot
hermar
ket
ingoppor
tuni
ti
es.
Di
sadvant
agesofMar
ketSegment
ati
on

• Mar ketsegmentat
iondependsont henat
ureoftheresear
chandthe
skil
lsthatareusedtocol
lectdata.Thi
smeanst hatt
heresul
tsofmarket
segment ati
onmaynotbeef fect
iveift
heresear
chprocesswasnot
properlydone.
• I
tisat
imeconsumi
ngpr
ocessbecausei
trequi
resal
otoft
imet
odi
vide
t
hemarket
s.
• Somef actorswhichcanbeconsi
deredsuchaspr
efer
encesaredynamic
(changes)andthi
smeanssegment ati
oncanbeaf
fect
edtotheextent
thati
tmi ghtbeuseless.
• Mar
ketsegmentati
onmeansspendi
ngalotofr
esour
cesandt
hismay
i
ncr
easeproduct
ionandoper
ati
onalcost
s.
• I
tresul
tsi
nacomplicatedproduct
ionsystem,f
orexample,
therewil
lbe
t
heneedtobuydif
ferenttypesofmachinesandtoemploydif
ferent
worker
stomeetdi
fferentconsumercharact
eri
sti
cs.
• Itmayresulti
nachangeofor
gani
zat
ionalcul
tur
eandt
hismayr
esul
tin
demoti
vation.
• Itr
equir
eshighl
yski
ll
edandspecial
izedresear
chexpert
sandt
hesear
e
expensi
vetoemployandtheyar
enotal waysavai
labl
e.
• I
tinvol
vesal
otofworkf
rom dat
acol
lect
ion,
anal
ysi
s,andeval
uat
ionup
t
osegmentat
ionoft
hemarket.
• Promoti
onalcostsmaybehi
gherasdi
ff
erentst
rat
egi
esmayber
equi
red
fordi
ff
erentsegment
s.
• Byf ocusingononeort wosegments,thereisadangerthatmor
e
resourcesar erequi
redtodevelopdif
ferenti
atedpr
oductsandexcessi
ve
speciali
zati
onmayl eadtoproblemsifconsumersinthosesegments
changet heirpurchasinghabi
ts.
Cr
it
eri
aforEf
fect
iveSegment
ati
on/
Requi
rement
sforEf
fect
iveSegment
ati
on

• Measurabl
e–thesize,pur
chasi
ngpowerandpr
ofi
lesoft
hesegment
shoul
dbemeasurable.
• Accessi
ble–t
hesegmentshoul
dbeef
fect
ivel
yreachedandser
ved.
• Subst
ant
ial–t
hesegment
sshoul
dbel
argeorpr
ofi
tabl
eenought
oser
ve.
• Di
ff
erent
iabl
e–t
hesegment
sar
edi
sti
ngui
shedt
ocr
eat
egr
oups.
• Act
ionable–effect
ivepr
ogr
amscanbedesi
gnedf
orat
tr
act
ingand
ser
vingthesegments.
For
ecast
ing

• Iti
sthesyst
emat
icpr
ocessofmaki
ngf
utur
epr
edi
cti
onsofagi
ven
vari
abl
e.
• I
tinvol
vesest
imat
inghowagi
venvar
iabl
eisl
ikel
ytobehavei
nnear
f
uture.
• Inmar
keti
ng,vari
ableswhi
charefor
ecast
edt othei
rbehavi
orincl
ude
sal
es,
prof
it
s,level
softhet
astesandpref
erences,demandetc.
• I
tisanappr
oacht
odet
ermi
newhatt
hef
utur
ewi
lll
ookl
ike.
Met
hodsofFor
ecast
ing(
For
ecast
ingTechni
ques)

• Thesear
edi
videdi
ntoqual
it
ati
veandquant
it
atef
orecast
ing.
1.Qual
it
ati
veFor
ecast
ing

• Thesecannotbeeasi
lyconver
tedi
ntonumer
icalt
erms.
• Theydependonhumanj
udgmentandexper
ienceandar
eusedwhen
datai
sscarce.
• Whenanewproducti
sint
roducedt
het
imef
ramei
ssol
ongt
hatdat
aisof
l
imi
teduse.
1.
1.Per
sonalI
nsi
ght

• I
tisaquali
tati
vemet hodthatdependsonmentalr
easoni
ngofthe
r
esearcher
.Thisinvolvesest
imati
ngorassuminghowagivenvar
iabl
e
wil
lbehaveinthefutureusi
ngpersonalj
udgment.
• For
ecast
ingi
sdonebyoneper
sonandi
tdependsont
hatoneper
son.
• Themajoradvant
ageofusi
ngpersonali
nsighti
sthatitr
esul
tsinqui
ck
for
ecast
ingwhichmeansmarket
ingdeci
sionsarequickl
yimplement
ed.
 • I
tisal
sol
essexpensi
ve.
• However,t
hiscanbelessaccurategi
venthatonlyoneperson’sjudgment
i
sconsideredasenoughtopredictt
hebehaviorofapart
icularvari
abl
e.
• Alsotheresul
tsproducedar
elessr
eli
abl
easj
udgmentvar
iesf
rom one
persontoanother
1.
2.PanelConsensus

• Iti
saforecast
ingmethodwher
ebyapanelofexper
tsdi
scussi
ssuest
o
arr
iveatanagreedf
orecast
.
• Thishashigheraccur
acyoverper
sonali
nsi
ghtasi
tinvol
vespool
ingof
knowledgeandideas.
• Allmembersi
napanelgivet
hei
rper
sonalj
udgment
sort
heyf
reel
y
part
ici
pat
eindi
scussi
ons.
• Allj
udgment
sar
econsi
der
edanddi
scussedunt
ilonagr
eementi
s
reached.
• Moreaccur
atei
nfor
mat
ionordeci
sionsar
emadegi
vent
hatmor
epeopl
e
ar
einvol
ved.
• Hi
ghqual
it
ymar
ket
ingdeci
sionsar
eli
kel
ytobemade.
• However,
itmayresul
tinpoormarket
ingdeci
sionsgivent
hatpr
edict
ions
aremadeont hebasi
sofmentalj
udgmentandt her
eisanelementof
subj
ect
ivi
ty.
• I
treducesi
nslowf or
ecasti
ngpr
ocesswhi
chdelaysi
mplement
ati
onof
market
ingdeci
sionsbecausear
gument
sarel
ikelyt
odragmoreti
me.
• Poorquali
tydeci
sionsar
eli
kelytobemadebecauseofi
ndividual
swho
ar
elikel
ytodominatepanel
discussi
onsandwhoareli
kel
yt obeopini
on
l
eaders.
1.
3.Mar
ketSur
vey

• I
tisaqual
it
ati
vef
orecast
ingmethodinwhichforecast
ingdeci
sionsar
e
madeonthebasi
sofdatacol
lect
edthroughsurveys.
• Theresearchercanfi
rstcar
ryoutint
ervi
ewsorsurveysinwhich
questi
onsareaskedt othet
arget
edmar ketoranysour
ceofinfor
mat
ion
needed,f
orexampl e,
consumers.
• From t
hedat
at hathasbeencollect
edt
hroughsur
veysori
nter
views,
the
resear
chpr
oblem isident
if
ied.
 • Theyar
emai
nlyusedwhent
her
esear
chpr
obl
em i
smor
ecompl
icat
ed.
• Thi
sisconsi
deredqual
it
ati
veast
heabsenceofadequat
edat
a,human
j
udgmentisneeded.
• Theaccur
acyoft
her
esul
ti
ngf
orecastdependsont
he:
• Repr
esent
ati
onoft
hesampl
es.
• Qual
it
yoft
hequest
ionsasked.
• Rel
iabi
li
tyofr
epl
ies.
• Qual
it
yofanal
ysi
sandt
her
esul
ti
ngconcl
usi
ons.
1.
4.Del
phiMet
hod

• Iti
saquali
tat
ivemethodoffor
ecast
ingi
nwhichthefut
urebehavi
orof
thegi
venvari
ablei
spredi
ctedbyusi
ngpersonalj
udgmentfr
om agroup
ofexper
ts.
• I
tissi
mil
art
opanelconsensusbecauseagr
oupofmember sare
i
nvol
vedi
nmakingesti
matesabouthowavariabl
ewi
llbehave.
• Expertresear
cher
sar easkedquest
ionsonebyoneandt hevi
ewsare
col
lectedsothatpredi
cti
onsaboutthefut
urebehavi
ororvari
abl
esar
e
done.
• However,
respondentexper
tsareindependent
lyaskedquesti
onsand
t
heirvi
ewsarecollect
edatdif
fer
enttimesandf or
ecast
ingisthendone.
Advant
agesofDel
phiMet
hod

• Hi
ghqual
it
yi nf
ormat
ioniscol
lect
edsincet
heDelphimethodinvol
ves
manyr
esearchexper
ts.Thi
scanimprovequal
it
yofforecast
ingdecisi
ons.
• Itr
educeseffectsofindi
vidualdominanceassoci
atedwithpanel
consensus.Thismeanst heanswersgivenbyoner espondentar
enot
aff
ectedbythepr esenceofothersasinthecaseofpanelconsensus.
• Mor
eaccur
ateandmor
erel
iabl
efor
ecast
ingdeci
sions.
Di
sadvant
agesofDel
phiMet
hod

• Itmeansf
orecast
ingdeci
sionst
akelongt
imetobeimplement
ed
becauset
hereisneedtogetvar
iousvi
ewsfr
om di
ff
erentr
espondent
s.
• I
tisver
ycost
lyascompar
edt
oot
hermet
hodsofqual
it
ati
vef
orecast
ing.
• Itr
equir
esmorei
mpor t
antandknowl
edgeabl
eexper
tresear
cher
swho
arecostl
yanddi
ff
icul
ttofi
nd.
 • Thefactt
hatther
eisneedtomakeafi
nalconcl
usi
onaboutforecast
ing
onthebasisofvi
ewsproducedmayi
ntr
oducesubj
ect
ivi
ty/
bias.
1.
5.Hi
stor
icalAnal
ogue

• I
tisaqual
it
ati
vemet
hodoff
orecast
ingi
nwhi
chhi
stor
yisver
yimpor
tant
i
ndeter
mini
ngthef
utur
e.
• For
ecast
ingdeci
sionsar
emadebyl
ooki
ngatt
hehi
stor
y.
• Hist
orymaypr ovi
deguidel
inesonhowacert
ainvar
iablei
sli
kel
yto
behaveoroccur,f
orexample,whenpr
edi
cti
nghowsal esofapr
oductwi
ll
behavei
nthenearf ut
ure.
• Wemayf i
rstl
ookathowt
hepr
oductandasi
mil
arpr
oducthavebeen
per
for
ming.
• Thehi st
oricalanal
oguecanbebasedonanal yzi
ngthehist
ori
cal
performanceofapr oductonthepr
oductlif
ecycle,f
orexampleifa
productfrom thepastyearwasonthegrowthstagethenwear eli
kel
yto
predictt
hati t
ssalesareli
kel
ytomaint
ainalevelofsal
esposit
ion
meani ngthatsalesareli
kel
ytobeconstantatacert
ainposi
ti
on.
Advant
agesofHi
stor
icalAnal
ogue

• I
tisthecheapestandeasi
estmethodoffor
ecast
ingavail
abl
etothe
market
ingmanagerbecauseitdoesnotr
equir
ecult
ivat
ionoffi
nanci
al
r
esources.
• I
tsavest
imecompar
edt
oot
hermet
hodssuchasDel
phimet
hod.
• Atti
mes,hist
ori
calbehaviorofavar
iabl
emaypr
ovi
deagui
del
inet
othe
fut
urebehavi
orofavariable.
Di
sadvant
agesofHi
stor
icalAnal
ogue

• Mostoft heti
mehistor
ydoesnotshapethefutur
e,forexample,the
condi
tionsunderwhichthatvar
iabl
ebehavedwil
lobviousl
ybedi ff
erent
fr
om futurecondi
ti
onsinwhichthebehavi
orofavariabl
ewilloccur.
• Miscal
culat
edfor
ecast
ingdeci
sionsar
eli
kel
ytobemadesi
ncehi
stor
ical
i
nformati
onusedmaynotbeappl i
cabl
e.
2.Quant
it
ati
veFor
ecast
ingMet
hods

2.
1.CasualMet
hod(
Exper
iment
)

• Thisi
safor
ecast
ingmethodinwhi
chacauseandeff
ectr
elat
ionshi
pis
usedasabasi
sforfor
ecast
ingt
hebehavi
orofagi
venvar
iabl
einthe
 nearf
utur
e.
• Iti
nvol
vesexamini
ngtheeff
ectsonevar
iabl
ehasoveranother
,for
example,
deter
minetheef
fectofpr
iceonthelevelofsal
es.
• Whenthecauseismanipul
ated/
adj
usted,
theeff
ectsonthevari
abl
eare
usedasthebasi
sofpredi
cti
ngbehavi
orofthevari
abl
einpart
icul
ar.
• Ital
soinvolvest
estmarket
inginwhichproduct
sarei
ntr
oducedona
smallerscalewi
ththei
deaoftest
ingreacti
onstonewproduct
s.
• Consumerreact
ionsar
eusedasbasi
stopr
edi
cthowavar
iabl
eisgoi
ng
tobehaveovert
ime.
Advant
agesofCausalMet
hod

• I
treduceschancesofproductf
ail
uresuchthatnewproduct
saremost
l
ikel
ytobesuccessfuldependi
ngonthereacti
onofconsumers.
• The‘causeandeff
ect’methodoffor
ecast
ingprovi
desanexpl
anati
onas
towhyavar i
abl
ewillbehavei
nacer t
ainway,
forexampl
e,anincr
easei
n
sal
escanbeat t
ri
butedtoadecreaseinpri
ce.
• Moreinf
ormati
onisli
kel
ytobeobtai
nedwhi
chisusuall
yquanti
tat
iveand
f
orecast
ingisdoneobj
ecti
vel
ybecauset
her
eisel
iminat
ionofhuman
j
udgment .
• Moreaccurat
eforecast
ingdeci
sionsar
eli
kel
yt obemadebecause
f
orecasti
ngdeci
sionsarebasedonquanti
tat
ivefact
sandr
eacti
onsof
t
argetconsumers.
Di
sadvant
agesofCausalMet
hod

• Iti
sacost
lymet
hodtounder
takewhenf or
ecast
ingbehaviorofavari
able
andthi
smeansmorefi
nanci
alresour
cesareneededtofundtheprocess.
• I
tisat
ime-consumingquant
it
ati
vetechniqueasmucht
imei
sneededf
or
t
hefor
ecasti
ngprocesstobesuccessful
.
• Itmayresul
tinbi
asedforecasti
ngdecisionsasaccuracyofdat
a
dependsontheresear
cher,sourcesofinfor
mati
on,changeincust
omer
tast
eandprefer
ences.
• I
tinvol
vesal
otofwor
kmeani
ngt
hati
tisal
abor
iouspr
ocess.
2.
2.Ti
meSer
iesAnal
ysi
s

• I
tisasyst
emati
cquanti
tat
iveprocesst
hati
nvol
vestheuseofpastdat
a
t
omakeapr edi
cti
onaboutthebehavi
orofagi
venvari
abl
e.
 • I
tinvol
vesr
ecor
dingdat
athathasbeenr
ecei
vedf
oraspeci
fi
cper
iod.
• Thedat arecordedisrepl
acedbynewdatameaningt
hatti
meser
ies
analysi
sinvolvesdecompositi
onofdat
aaccor
dingtocer
tai
n
requir
ement sorfactor
s.
• Iti
smostl
yusedinpr
edi
cti
onoft
hebehavi
orofvar
iabl
essuchassal
es,
prof
it
sandcost
s.
• I
tinvol
vestheprocessofcal
cul
ati
ngmovi
ngaver
agesf
rom t
hedat
athat
i
sbeingrecei
ved.
• Asnewdat
aisaddedon,
anaver
agei
sal
socal
cul
ated.
• Asetofmovingaver
agescal
cul
atedi
susedi
nthepr
ocessof
ext
rapol
ati
on.
• Extr
apol
ati
oni
saprocesswher
ebytr
endresul
ti
ngi
nmovi
ngaver
agesi
s
usedasabasi
stopredi
ctt
hevari
abl
eproduct
.
Advant
agesofTi
meSer
iesAnal
ysi
s

• Iti
squit
eanobj
ect
ivetechni
quesinceitdependsont
heuseof
quant
it
ati
vedat
awhichismeasurable.
• Timeseriesanal
ysi
sismostl
yusedwhent hevari
abl
etobeproj
ect
edi
s
veryvi
taltot
heextentt
hatmathemat
ical
calcul
ati
onshavet
obemade.
• Ther
eisel
imi
nati
onofhumanj
udgmentorbi
assi
ncequant
it
ati
vef
act
s
det
ermi
nethefor
ecast
s.
• Forecasti
ngdecisi
onsar
emostli
kel
ytobeaccurat
egivent
hat
subject
ivi
tycausedbyhumanj
udgmentisel
iminat
ed.
Di
sadvant
agesofTi
meSer
iesAnal
ysi
s

• Iti
nvol
vesal
otofmat
hemat
icalcomput
ati
onswhi
chmakesi
tmor
e
dif
fi
cul
t.
• Someerr
oneousfor
ecast
ingdeci
sionsar
eli
kel
ytobemadebecauseof
themat
hemati
caler
ror
s.
• Timeser i
esanal
ysi
si saff
ectedbyfactor
ssuchasinfl
ati
onsucht hat
histori
caldat
ausedincalculat
ionofthemovi
ngaveragemaybel ess
relevantwhenmakingpredicti
onsaboutt
hebehavi
orofthevar
iable.
• I
tignor
estheuseofquanti
tat
ivefactssuchasconsumerpr
efer
ences
whicharevi
tali
npr
edict
ingbehaviorofthevar
iabl
e.
• I
tmaynotbeappl
icabl
ewher
ethecompanydeal
swi
thseasonal
 pr
oduct
sorwher
epr
oduct
ssal
esorcost
sar
edi
ff
icul
ttopr
edi
ct.
I
mpor
tanceofFor
ecast
ingt
oanOr
gani
zat
ion

• Forecast
ingpr
ovi
desasenseofdi
rect
iont oabusinesswhi
chmeansit
becomesmucheasiertor
unandcontr
olt heor
ganizati
onassome
confusi
oncanbeeli
minat
edandal
lwor kerswouldworkaccor
dingt
othe
for
ecast.
• Itcanbeusedasaperformanceassessment
.Forecast
edbehavi
orcan
bemeasuredagainstr
ecordedper
formance,
thati
s,expect
ed
perfor
manceontheground.
• Iti
simpor tantinimprovinginfor
mationflowmeaningthatfor
ecast
ingi
s
acollecti
vepr ocesswhichi nvol
veseverycomponentorfuncti
onofthe
organizat
ionandt hi
sincreasestherat
eofinter
act
ionandexchangeof
i
nformat i
onbet weenvar i
ouscomponent softheorgani
zati
on.
• Iti
mprovesmoraleandmoti
vat
ionofthesubor
dinat
es.Subordinat
esar
e
ablet
owor kver
yhardastheywanttoachi
eveexpect
edtargetsin
for
ecast
ingandthisi
ncr
easesthei
rcommitmenttowork.
• Forecast
ingactasanaidtoresour
ceal
locati
on.Resour
cesareal
locat
ed
accordi
ngtowhati sf
orecast
edandthi
shelpsinminimi
zingr
esource
wastageintheorgani
zati
on.
• Forecast
ingenabl
eseffi
cientandef fect
iver
esourceuti
li
zat
ionmeaning
thati
tprevent
sresour
cesf rom beingidl
easforecast
ingdecisi
onsactas
aguideli
neonhowt ouser esources.
• Itreducesther
iskofproductandcompanyfai
luremeaningt
hatt
he
organizat
ionwil
lbeabletocontr
olsomeint
ernalfact
orsaswel
las
antici
pati
ngexter
nalfact
ors.
• I
tisaninst
rument
altooli
nminimi
zingpr
oducti
oncost
sandover
allcost
s
i
ncurr
edinthedaytodayrunni
ngofthebusi
ness.
• Ithelpsi
nworkersbeingabl
etor
eali
zeandachi
evef
orthemsel
ves.Iti
s
abletoall
owindivi
dualst
obesuccessf
ulast
heyworkt
owardsachievi
ng
forecast
edperf
ormance.
Li
mit
ati
onsofFor
ecast
ingt
oanOr
gani
zat
ion

• Hi
storycanbediff
erentf
rom thef
utur
e.Condit
ionsunderwhich
f
orecasti
ngwasdonecanbet otal
lydi
ffer
entfr
om condit
ionsunder
whichiti
sdonetheref
orefor
ecasti
ngcanbever yuncer
tainaboutt
he
f
uturesuchthatal
lwhatisdoneisaboutest
imation.
 • Iti
saffectedbyext
ernalf
actor
ssuchasconsumerpreferencesandstat
e
oftheeconomywhi charedynamicandthi
smakesforecasti
ngauseless
toolasresult
shaveahighprobabi
li
tyofbei
ngmist
aken.
• Theprocessi
nvol
veshumanj
udgmentwhi
chl
eadst
othepr
ocessbei
ng
subj
ecti
ve.
• Iti
nvol
vesalotofmathemati
caler
ror
swhichmaybeencount
eredwhen
quanti
tat
ivet
echni
quesareusedandobt
ainedi
nfor
ecast
ing.
• Iti
salwayscompli
catedtotheext
entthatr
esear
chexper
tsar
erequi
red
andtheseexper
tsarescarceandexpensi
vetohi
re.
• Iti
ncreasesthelotofworkonthecar
ryi
ngoutoft
heprocess.Thi
sis
becauseitinvol
vesalotofpr
ocessesandst
agesinor
dertogetaccurat
e
resul
ts.
• I
tisti
me-consumi
ngbecausei
tinvol
vesdat
acol
lect
ionanal
ysi
sand
i
nter
pret
ati
onwhichr
equir
esalotofti
me.
Mar
ket
ingResear
ch

• Itr
efer
stoasyst emati
cmarket
ingprocesswhi
chinvol
vescol
lect
ionor
gather
ingofdatarel
ati
ngtomarket
sormar ket
ingi
ssues,
anal
ysisofthe
dataandevaluat
ionofthedat
a.
• Marketr
esearchisal
laboutinfor
mat
ionf
rom t
heappr
opr
iat
esour
cesso
t
hatthecorr
ecttypeofproductmaybepr
oduced.
• Iti
nvol
vesresear
chi
ntoi
nfor
mat
ionsuchast
hepr
oduct
,pl
ace,
pri
ce,
promoti
onanddemand.
Met
hodsofResear
ch

1.Pr
imar
y(Fi
eldResear
ch)

• I
tisaresearchpr
ocessormet
hodt
hati
nvol
vescol
lect
ionofi
nfor
mat
ion
f
rom t
hef i
eld.
• I
nfor
mat
ioni
sgat
her
edf
rom t
hecust
omer
ssoi
tisf
ir
sthandi
nfor
mat
ion.
• Pri
maryresearchinvol
vestheuseofresear
chmethodssuchas
exper
imentalsur
veys,i
nter
views,obser
vati
onsandquest
ionnai
res.
• Inf
ormat
ioni
sprovi
dedmai
nlybycust
omer
s,ot
hercompani
esand
gover
nmentaut
hori
ti
es.
• Forpr
imaryresearcht
obesuccessf
ul,
theresearchershouldask
quest
ionsi
nr el
ati
ontothepur
poseorobj
ectiveoftheresearch.
Advant
agesofPr
imar
yResear
ch

• Fir
sthandinf
ormati
oni
sgat
heredandther
earehighchancesofgett
ing
corr
ectinf
ormati
onwhi
chwil
lresul
tint
heprovi
sionofproduct
sthatwil
l
sati
sfyconsumers.
• I
nfor
mati
oncoll
ect
edisupt
odat
eandr
elevantandcanbeusedt
osol
ve
t
heprobl
em ofr
egency.
• Ital
lowsthecompanytogainacompet
it
iveadvant
ageoverri
val
s
becauseinf
ormati
oncoll
ect
edismoreaccur
ateandchancesofget
ti
ng
misleadi
nginf
ormati
onaresli
m.
• Ithel
pstheorganizat
iontokeepi
ntouchwit
hthechangesi nthe
consumerprefer
ences.Thismeansthatt
heorganizat
ioncaneasil
y
sati
sfyconsumers’needsandwantstoavoi
driskorproductf
ail
ure.
Di
sadvant
agesofPr
imar
yResear
ch

• Itneedstobecomplementedbysecondaryresear
ch.Thi
smeansthat
datacoll
ect
edthr
oughpr i
mar yresear
chmaynotbeadequat
eunless
somesecondarysourcesofinformati
onhavebeenused.
• Iti
sver
yexpensivebecausealotofcapi
talr
esourcesarerequi
redto
fundt
heresear
chprogram andtomakesur ethatcor
recti
nformati
onhas
beengat
hered.
• I
tist
ime-
consumingcomparedt
osecondaryr
esear
ch.Thi
smeanst
hata
l
otoft
imeisneededt
opreparet
heresear
ch.
• Pr
imar
yresear
chdoesnotal
waysgi
veaccur
atei
nfor
mat
ion.
• I
tcr
eatesworkontheresear
chercompar
edt
osecondar
yresear
chand
t
her
efore,
iti
slabor
ious.
• I
nfor
mat
ionsour
cesar
enotalwaysr
eadi
l
yavai
labl
eandl
imi
ted
i
nfor
mat
ionmaybegather
ed.
Secondar
y(DeskResear
ch)

• I
tinvol
vesgat
her
ingi
nfor
mat
ionf
rom r
eadi
lyexi
sti
ngmat
eri
al.
• I
nfor
mat
ioni
scol
l
ect
edf
rom sour
cest
hatal
readyexi
st.
• Itist
heuseofsecondhandinf
ormati
on.Thi
si sbecauseitwascoll
ect
ed
from publi
shedsour
cessuchasnewspapers,magazines,gover
nment
publi
cations,t
ext
books,
bal
ancesheet
s,st
atist
icalof
ficeetc.
• I
tmeansi
nfor
mat
ioni
sgat
her
edf
rom t
hedeskasopposedt
othef
iel
d.
Advant
agesofSecondar
yResear
ch

• Inf
ormat
ionsourcesalr
eadyexi
storar
eavai
labl
ewhi
chmakesi
teasyt
o
sol
vethemarketresear
chprobl
em.
• Iti
sverycheapascompar
edt
ofi
eldr
esear
chsi
ncei
nfor
mat
ionsour
ces
arereadi
lyavai
labl
e.
• Itsavesti
meascomparedtofi
eldresear
chsi
ncet
her
eisnoneedt
o
gatherinf
ormat
ionf
rom t
hefi
eld.
• Deskr
esear
chdoesnoti
nvolvealotofworkcomparedtofi
eldresear
ch
si
ncet
heyaref
ewprocessesinvol
vedingather
ingofi
nfor
mat i
on.
Di
sadvant
agesofSecondar
yResear
ch

• Inf
ormati
onusedmaybeirrel
evantbecausei
twascol
lect
edf
ora
dif
fer
entpur
posef
rom ourownr esear
ch.
• I
nfor
mationusedcanbeoutdat
edandmaynotbeappr
opr
iat
etosol
ve
t
heresearchpr
obl
em atpr
esent.
• Inf
ormati
ongather
edissecondhandanditmaybedif
fi
culttosat
isf
y
humanneedsandwant ssincethei
nfor
mati
onwascollect
edfrom t
he
sourcesdi
ff
erentf
rom consumerswhoaret
arget
ed.
• I
tneedst
obecompl
iment
edbyf
iel
dresear
ch.
• Theresear
cheri
snotawareoft
hef
undament
alr
esear
chmet
hodsused
tocol
lectt
heinf
ormat
ion.
TypesofDat
aCol
lect
ed/
TypesofResear
cher
s

1.Qual
it
ati
veResear
ch

• Thisisindepthr esear
chintothemotivati
onsbehindconsumer s’
behaviororatt
itude.Consequentl
y,i
tgivesinf
ormat i
ononconsumer s’
tast
esandpr eferencesandbuyinghabi t
sandalthought hi
sisi
nevit
abl
y
subjecti
ve,i
tprovidesinsi
ghttoconsumerbehavi ortocomplementthe
quali
tati
vedata.
• Qual
it
ati
vedataisnon-
quant
if
iabl
e.I
tisdat
awhi
chcannotbeexpr
essed
i
nnumericalt
erms.
2.Quant
it
ati
veResear
ch

• Concentrat
eonf actualinf
ormat
ionsuchasmar ketshare,
probabl
elevel
ofsalesatagivenpr iceandwaysinwhichamar ketcanbesegmented.
Inessence,thi
srelatestowhobuystheproductandhowmucht heywill
 buy.
• Techni
quesofquanti
tat
iver
esear
chi
ncl
udesur
veys(
facet
oface)
,by
postort
elephone.
• Quanti
tat
ivedat
aisdatathatcanbemathemat
ical
lyquant
if
iedort
hat
caneasil
ybeexpressedi
nnumer i
calt
erms.
• Quant
it
ativedat
aisobj
ect
ive(
freef
rom bi
as)becausei
tdependson
measurements.
• Itnor
mal
lyincl
udesaboutt
hel
evelofdemand,
thet
imeconsumer
sbuy
goodsaday.
Diff
erencesbetweenQualit
ati
veandQuant it
ati
veResear ch
Qualit
ati
veResear ch Quanti
tat
iveResearch
Dataisnon- quanti
fiabl
e. Dat
acanbeexpr essednumer ical
ly.
Subjecti
ve. Obj
ecti
ve.
Requiresintervi
ewswi thspeci
alski
ll
s. Fewi nter
viewsspecialskil
lsr
equired.
Sampl esizesusual l
ysmall. Samplesizesusual
lylarge.

TheResear
chPr
ocess

St
age1:Def
ini
ti
onoft
hePr
obl
em

• Befor
elaunchi
ngar esear
chproj
ect
,iti
snecessar
ytoclar
if
ythetypeof
i
nformati
onrequi
red,whyiti
srequi
redandwhatquest
ionsiti
sdesigned
toanswer.
St
age2:I
nvest
igat
ionofSecondar
ySour
cesofDat
a

• Iti
sami staketoequatemarketi
ngresear
chwi
thquest
ionnai
res
completedinthehighstr
eet.I
nfact,
befor
eabusi
nesscoll
ectspri
mar
y
data,
itshouldfi
rstchecksecondar
ydata.
• N.B.
:Primar
ydataisdefi
nedast
hedat
athator
igi
nat
esasar
esul
tof
part
icul
ari
nvest
igat
ion.
• Secondarydat
ainvol
vestheuseandanal
ysi
sofdatacol
lect
edf
or
anotherpur
poseandfoundbymeansofdeskresear
ch.
St
age3:Sel
ect
ionofPr
imar
yCol
lect
iveDat
a

• Therearethr
eebasictechni
quesoffi
eldresear
chdat
acol
lect
ion
methods;surveys,
observat
ionsandexperi
ments.
• Thetaskfortheresearcheri
stochoosethemostappropri
atemethod.In
makingthi
schoice,considerat
ionsshoul
dbemadet orel
ati
vecosts,ti
me
avai
labl
e,typeofinfor
mat i
onrequir
ed,t
ypeofpeopl
etobeinvest
igated
 andt
hedegr
eeofaccur
acyr
equi
red.
St
age4:Deci
deont
heDet
ail
soft
heResear
chTechni
ques

• Incl
udedint
hisst
agewouldbethei
nfor
mat
ionofquest
ionnai
resand
deci
dingonsampli
ngmethods.
St
age5:Anal
ysi
s,I
nter
pret
ati
onandEval
uat
ionoft
heDat
a

• Aft
ercol
lect
ingt
hedat
a,i
tisnecessar
ytodrawconcl
usi
onsf
rom i
tthat
canbeofvaluei
ndesi
gni
ngmar ket
ingst
rat
egi
es.
St
age6:Recommendat
ionsf
orAct
ion

• Thefi
nalpar
toft
her esear
chpr oj
ectconsi
stsofrecommendingt
he
st
rat
egytobepursuedinrelat
iontotheproductandmarket
ingef
for
t.
• Aresearchi
sdesignedt
opr
ovi
deanswer
stocommer
cial
lyi
mpor
tant
marketi
ngquest
ions.
Techni
quesf
orFi
eldResear
ch

1.Obser
vat
ions

• Ratherthanaski
ngpeopl
eaboutt
heirbehavi
orort
hei
rvi
ews,
mar
ket
resear
cherscanobser
vehowpeoplebehave.
• Observat
ionst
aket
hefor
m ofaudi
ts(
suchasst
ockt
ake)
,recor
ding
t
hingsandwatchi
ng.
• Obser
ver
scanbeempl oyedtowatchthebehavi
ori
nshopsandhow
peopl
euset
heproductafterpur
chase.
Advant
agesofObser
vat
ions

• I
tall
owstheresear
chertor
ecor
dbehaviorasitoccur
sanditdoesnot
r
elyonpeopl
e’smemor i
esandprevi
ousrepor
tsofthei
rbehavi
ors.
• Observati
onsprovidesver ylar
geamount sofdataandbecauseofthe
numberofobser vationstechni
ques,theycanbeusedt oprovi
devali
dit
y
checksononeanot her,t
hatis,i
fdiff
erentt
echni
quesleadtosi
mil
ar
resul
tstheneachi ndivi
dualmet hodcanbeusedwi t
hgreat
erconfi
dence.
• Observat
ionsal
soallowcoll
ectionofdatafrom cert
aingroupswho
wouldnotbeabletogiveverbalrepor
tsoftheirbehavi
ororfeel
ings
becausetheycannotspeak,
forexampl e,
infantsoranimals.
• Dat
acol
lect
edusi
ngobser
vat
ionsi
snotr
eli
abl
e.
Di
sadvant
agesofObser
vat
ions
 • Peopleunderobser
vat
ionssometi
mest r
ytocreat
eapar
ti
cul
ar
i
mpr essi
onift
heyknowt heyar
ebeingobser
ved.
• Itisnotal
wayspossi
bletopredi
ctwhenacert
ainact
ivi
tyisgoingtotake
placeandther
efor
e,aresear
chercannotr
ecor
dbehaviorasitact
uall
y
happens.
• I
tisonl
yli
mitedt
ocer
t ai
nsi
tuati
ons,f
orexample,
youcannotobt
aint
he
l
if
ehist
oryofani
ndi
vidualt
hroughobser
vati
ons.
• Itcr
eatesmanyunanswer
abl
equest
ions,
forexampl
e,t
her
easonswhya
customeri
sacti
ngthewayheis.
2.Exper
iment
s

• Areusedtotestandassessther esponseofconsumer
stochangesin
market
ingmix.Thismightinvolvechangesinthepr
oductorpackagi
ng,
adver
ti
sing,
priceanddist
ri
but i
onar r
angements.
TestMar
ket
ing

• I
tisanexper
iment
.
• Iti
nvolvesal
imi
tedl
aunchofaproductt
otestr
eact
ion,
bot
htot
he
productandt
hewayinwhichi
tismarket
ed.
Advant
agesofTestMar
ket
ing

• Itr
educesmar
ket
ingcost
ssi
ncei
tist
est
edonasmal
lsampl
eoft
he
popul
ati
on.
• I
tall
owsthefi
rmtoknowthel
ikel
yreact
ionofcust
omer
sbef
ore
l
aunchi
ngthei
rpr
oducts.
Di
sadvant
agesofTestMar
ket
ing

• I
tsaccur
acydependsont
hechoi
ceofpar
ti
cipant
s.
• Thereisalsoadif
fi
cul
tyofcontr
olli
ngrandom var
iabl
essuchasweat
her
condit
ionsorthemoodofparti
cipants.
Advant
agesofExper
iment
s

• Itreducestheriskofproductf
ail
ure,f
orexample,i
ftheproducti
s
i
ntr oducedtotestconsumerreact
ionandtheconsumer sacceptt
he
product ,
thenthecompanycangoont olaunchtheproductonanati
onal
sale( commercial
izat
ion)
.
• Mor
erel
iabl
edat
aisgat
her
edwhi
chi
smor
eobj
ect
ivesi
ncet
he
 consumerr
eact
ionpr
ovi
desagui
del
inet
othesour
cesoft
hepr
oduct
.
• I
tist
heonlytechniquethatexpl
ainswhyconsumer sbehaveinacertai
n
wayorwhythepr oductofcompanyf ai
ls/
succeed,f
orexample,aproduct
mayfai
lasar esul
tofpricei
ncreases,l
ackofeffect
iveadver
ti
singetc.
• Moreabundantinf
ormati
onmaybegat
her
edandt
het
echni
quei
sless
cost
lycomparedtoobservat
ion.
Di
sadvant
agesofExper
iment
s

• Itr
equir
esempl oyment,
hir
inghighl
yexperi
encedresear
cherswhoare
goodatcarryi
ngoutfiel
dexperi
ments.Theseresear
cherscannotbe
easil
yavai
labl
eandt heyar
eexpensivetohir
e.
• Mostoftheinformat
ioncol
lect
edismainl
yquanti
tat
iveandtheref
ore
qual
it
ati
veinformati
oncanbeignoredi
fexper
imentsarenotproperl
y
i
mplemented.
• Experi
mentsusual
lyr
ecor
dinformat
ionaboutwhatwi
llhappenandmay
notaccountf
orwhathashappened.
• Theproblem wit
hexperi
mentsistocontr
olotherf
actorsandthi
smeans
wemaynotknowwhatact uall
ycausescert
ainconsumerbehavioror
whatcausesachangei nthemarket
ingoftheproduct,
forexample,a
decl
ineinsalesmighthavebeencausedbyotherfact
orsli
keinf
lati
on.
• Exper
imentsareal
soti
me-consumi
ngmeani
ngthati
nordertogather
accur
atedata,
ther
eisneedformor
eti
metocar
ryoutfi
eldexper
iments.
3.FocusGr
oups

• Thi
sinvol
vesagroupdi
scussi
oni
nwhichpeopl
ear
efr
eet
oexpr
ess
vi
ewsandopini
onsonaselect
edsubj
ect
.
• Thetechni
queisusedasameansofdeter
mini
ngbot
hover
tand
subconsci
ousatt
it
udeandmoti
vat
ions.
• Thismeanstheresear
cherbecomesthel
eaderoft
hegroupwhi
le
consumerscontr
ibut
ethei
rviewsandpar
ti
cipat
einpr
ovisi
onof
market
ingdata.
• Theresearchersel
ectsaspeci
fi
cmar
ket
ingt
opi
c,f
orexampl
e,i
ssues
abouttheproductquali
ty.
• Ther
esear
cheral
sopar
ti
cipat
esandcont
ri
but
eshi
sopi
nions.
Advant
agesofFocusGr
oups
 • Alotofdat
aiscoll
ectedsinceafocusgr
oupbecomesasour
ceof
di
ffer
entvi
ewsfrom consumer.
• Ther
eiseli
minati
onofbi
asgivent
hattheresearcherisal
soapar
ti
cipant
andcol
lect
sinfor
mati
onfrom t
heact
ualtargetsource.
• Theyar
everycheaptoadminist
erandeasytousewhengather
ingdat
a
compar
edtootherresear
chtechni
quessuchasobser
vat
ion.
• Theresear
chget
sact
ual
andmor
erel
iabl
einf
ormat
ionf
rom t
he
consumer.
Di
sadvant
agesofFocusGr
oups

• I
tist
ime-
consumi
ng.
• I
tmayresul
tinhighlevel
sofconf
li
ctsbet
weendi
ff
erentconsumer
s
whi
chmayaffecttheresul
ts.
• I
tmayr esulti
nl i
mitedvi
ewswhichmayaff
ectther
eli
abi
li
tyof
i
nformationsincetherei
snoguarant
eet
hateachandever
yindi
vidual
wil
lpar
ticipat
e.
• Thi
scanbeinef
fecti
veassomeconsumer
smaynotcont
ri
but
ethei
r
vi
ewsbecauseofshyness.
• Theelementofbiaswil
lnotbeeliminat
edsi
ncether
esear
cherasa
groupleader
,contr
olst
hediscussionsandwi
lldr
awconcl
usi
ons.
• I
tmaybeexpensi
vef
ort
heorganizat
ionbecausei
trequi
res
r
efr
eshment
sandawell
-f
urni
shedroom.
• Onecustomermaydomi
nat
ethedi
scussi
onandt
hismayaf
fectt
he
resul
ts.
• I
tmaybeasour
ceofdemot
ivat
iont
oconsumer
swhosei
deasar
enot
i
mpl
ement
ed.
5.Sur
veys

• I
tinvol
vesgat
her
ingofdat
abyuseofsur
veysquest
ions.
• Theresear
cherasksquest
ionsaboutacer
tai
nmar
ket
ingpr
obl
em and
theconsumerrespondst
othequesti
ons.
• Ther
esear
cherhast
orecor
dal
ltheanswer
stot
hequest
ionasked.
• Sur
veyscanbedel
iver
edi
nanyoft
hef
oll
owi
ngways:
• Per
sonali
nter
viewi
ng.
 • Tel
ephonesur
vey.
• Post
alsur
vey.
• Panelsur
vey.
• Gr
oupi
nter
viewi
ng.
5.
1.FaceToFace(
Int
ervi
ewSur
vey)

• Iti
safacetof
aceresear
chinwhi
chtheresear
chercol
lect
sthedat
a
dir
ect
lyfr
om t
hetar
getsour
ceofi
nformati
on.
• Theresear
cherasksquest
ionsdi
rect
lyt
otheconsumer
swhot
hen
provi
deimmediat
eanswers.
• Iti
smoreli
keadi
scussi
onwhichinvol
vesaninterviewbetweent
wo
peopl
eatonet
ime,t
hati
s,i
nter
viewerandtheinterviewee.
Advant
agesofFaceToFace

• Fi
rst
handi
nfor
mat
ioni
sgat
her
edsi
ncei
tiscol
lect
edf
rom t
hef
iel
d.
• I
mmedi
ateresponsesar
eobt
ainedandt
hismeansi
tmaybequi
ckt
o
i
mpl
ement.
• I
tischeapercompar
edt
otel
ephoneandpost
alsur
veys.
• Theinter
vieweecanaskforuncl
earareast
obecl
ari
fi
edbyt
he
resear
cherift
hequesti
onsareambiguous.
• Quanti
tat
iveinf
ormationcanbegat
her
edwhi
chi
simpor
tantwhen
makingmar ket
ingdecisi
ons.
• Obser
vat
ionofr
eact
ionsi
spossi
ble.
• I
tisf
lexi
ble.
• Vi
sualmat
eri
alscanbeused.
Di
sadvant
agesofFaceToFace

• Biasedinf
ormat
ioncanbecol
lect
edsincether
esear
chercanask
questi
onsinawaythathewil
lbeexpecti
ng.
• Someinter
vieweeshaveatendencyofexagger
ati
nginformati
on
askedi
nordertopleaset
heinter
viewerandgetaposit
iveexpressi
on.
• I
tist
ime-consumi
ngi
fther
esear
cherl
acksski
ll
stocont
rolt
he
r
esponses.
• Sur
veysatt
imesl
imi
ttheamountofquant
if
iabl
edat
atobecol
lect
ed.
 • I
tisal
aboriousprocesssincei
ttakest
imeandi
smor
edemandi
ngi
n
t
ermsofresearchtechni
que.
• I
tisadi
ff
icul
ttosampl
eascat
ter
edpopul
ati
on.
5.
2.Post
alSur
veys

• I
tiswhenquest
ionsar
easkedandr
espondedt
obymeansoft
hepost
.
• Theresear
chercol
lect
sdat
abypr
epar
ingquest
ionswhi
char
esentt
othe
consumersbypost.
• Theresear
chermaysendasel
f-
addr
essedst
ampedenvel
opewhi
chmay
beusedbyt her
espondent
.
• I
tisasur veymet
hodwhi
chi
snormal
lyusedbycompani
eswhohave
well
-knownconsumer
sandt
hosewhobuygodsoncredi
t.
Advant
agesofPost
alSur
veys

• Ther
eistheeli
minat
ionofthei
nter
viewerbi
assi
ncetheint
ervi
ewerwi
ll
beabsentwhenthei
nter
vieweewil
lbeansweri
ngquesti
ons.
• Therearehigherchancesofgat
heri
ngaccuratei
nfor
mati
onsincemost
peoplearecomfortabl
ewithgi
vingcor
rectanswer
sintheabsenceoft
he
i
ntervi
ewer.
• I
treducest
her
esear
cher
’swor
kload.
• I
tmayr
educecost
ssuchast
ranspor
tcost
s.
• Moreinf
ormati
onisl
ikel
yt obeobt
ainedgi
venthatt
hei
nter
viewerhas
f
reedom t
ogiveasmuchi nfor
mati
onastheycan.
• Anonymi
ty.
• Gi
ver
espondent
sthet
imet
ocheckdat
a.
• Reachesscat
ter
edpopul
ati
ons.
Di
sadvant
agesofPost
alSur
veys

• Ther
eisahi
ghdegr
eeofcheat
ing/
exagger
ati
onsi
ncet
hei
nter
viewerwi
ll
beal
one.
• Somei
nter
vieweesmaynotevenr
espondt
othequest
ions.
• Tooli
ttl
einf
ormat
ioncanbecol
lect
edbecausei
tdependsont
hespaces
provi
ded.
• I
tmi
ghtbedi
ff
icul
twhendeal
ingwi
thunknowncust
omer
s.
 • Notal
lint
ervi
ewer
shavet
imet
orespondt
othequest
ionspost
ed.
• Expensi
vei
nter
msofpost
.
• Lowr
esponser
ate.
• Nocont
rol
overr
espondent
.
5.
3.Tel
ephoneSur
veys

• Thei
nter
viewi
scar
ri
edovert
hephone.
• Theresearcherasksquest
ionst
otheint
ervi
ewert
hrought
elephoneand
thei
ntervi
eweegi vesani
mmediatef
eedback.
• Thisi
snormall
ycarri
edoutonr
adi
oorwhent
her
esear
cherhaswel
l-
knowncustomers.
Advant
agesofTel
ephoneSur
veys

• I
tisl
esst
ime-
consumi
ngascompar
edt
opost
alsur
vey.
• Therei
simmediateresponsef
rom t
hei
nter
vieweeandt
hisqui
ckens
market
ingdeci
sions.
• Fi
rst
handi
nfor
mat
ioni
scol
lect
ed.
• I
tisver
yfl
exi
bleandmor
econveni
ent
.
• Wi
degeogr
aphi
calspr
ead.
• Lessi
nhi
bit
edt
hant
hef
acet
ofacesur
veys.
• Bet
terr
esponser
atet
hanpost
alsur
veys.
• Undemandi
ngofr
espondent
s.
Di
sadvant
agesofTel
ephoneSur
veys

• I
tismor ecompl
icat
edt
ousethatwemi ghtnotr
eacht
het
arget
sast
hei
r
t
elephonenumbersmaynotbeavai
labl
e.
• Cost
lyi
nter
msoft
elephonebi
ll
s.
• Telephonesurveysmayleadtothecol
lect
ionoffal
sei
nfor
mat i
onsi
nce
theinter
vieweehasahighchancetoli
egiventhatt
hei
nter
vieweri
s
absent.
• Someint
ervi
eweeshaveatendencyofnotr
espondingtoat
elephonecal
l,
meani
ngthatcol
lect
ionofi
nfor
mationmaybediff
icul
t.
• Tel
ephonesar
eaf
fect
edbyanumberoff
act
orssuchasel
ect
ri
cpower
 cut
s,badweat
heret
c.andt
hismakesi
tdi
ff
icul
t.
• Bi
asedbecausei
texcl
udest
hosewi
thoutphones.
• Novi
sualst
imul
i.
5.
4.PanelSur
veys

• Thisi
swheretheopini
onsandbehavi
orofar
epr
esent
ati
vegr
oupof
peopl
eisobt
ained.
Advant
agesofPanelSur
veys

• Member
sar
ecooper
ati
ve.
• Panel
member
sknowpr
ocedur
esandt
imei
ssaved.
• Tr
endsovert
imecanber
evi
ewed.
• Appoi
ntment
savoi
dtheexpenseofr
etai
ls.
• Cont
rolgr
oupscanbef
ormed.
Di
sadvant
agesofPanelSur
veys

• Panel
member
stendt
obeat
ypi
cal
.
• Panel
sophi
sti
cat
iondevel
ops.
• Panelsur
veysmayleadt
othecol
lecti
onoffal
seinf
ormationsi
ncet
he
i
nter
vieweeshavehi
ghchancest
oliegivent
hatt
heinter
vieweri
sabsent
.
5.
5.Quest
ionnai
res

• I
tisar
esear
chmet
hodt
hati
nvol
vest
heuseofwel
l-
str
uct
uredquest
ions.
• I
tinvol
vesdesi
gni
ngquest
ionswhi
chwi
llhel
pincol
lect
ionofdat
a.
• Thequest
ionsarenor
mal l
yarr
angedinor
derandt
her
ear
espacesl
eft
fort
heint
ervi
eweetogivesomeinfor
mati
on.
• Theinter
vieweei
slef
tal
onet
ocompl
etet
hequest
ionnai
ref
or
assessment.
Advant
agesofQuest
ionnai
res

• Thereiseli
minati
onoftheint
ervi
ewerbiasassoci
atedwi
thdir
ect
questi
oningoftheint
ervi
eweebytheint
ervi
ewer.Thismeansthatthe
resear
cherisunabletoaff
ectt
heresponsegivenbythei
nter
viewee.
• Ital
lowsmoreinf
ormati
ontobecol
lect
edsi
ncemanyquestionsar
e
askedandenoughspacesarepr
ovi
dedfort
herespondentt
ogivemor
e
 i
nfor
mat
ion.
• Theyaresui
tabl
ewhendeal
ingwi
thalargesampl
e,meani
ngt
hatt
he
resear
chbecomeseasi
ert
oadmini
ster
.
• Morereli
abl
eandr el
evanti
nfor
mationcanbegather
edsi
nce
quest
ionnai
resal
lowrespondentst
ogiveinf
ormati
onatt
hei
rownpace.
Di
sadvant
agesofQuest
ionnai
res

• I
tisti
me- consumingandresponsest
akeal
ongt
imet
obeobt
ainedand
t
hisdelaysmar ket
ingdeci
sions.
• Thereisahi
ghtendencyofpr
ovidi
ngfal
seinf
ormat
ionbecausedat
ais
provi
dedint
heabsenceoftheint
ervi
ewer
.
• Notal
lpeopl
ehavet
het
imet
ocompl
etequest
ionnai
res.
• Muchoft heresult
sobtai
nedthroughuseofquesti
onsdependont he
natureoftheresear
chandthetypeofquest
ions.Thismeansthatpoor
researchandpoorquesti
onsmaycompr omisetheresul
tsoft
he
research.
• Therei
snoroom forquest
ionspeci
fi
cati
onmeaningthattherei
sno
room f
orr
espondentstoaskfur
therquest
ionsf
orcl
arif
icati
on.
• Quest
ionnai
resf
aceapr
obl
em ofnon-
ret
urns.
Char
act
eri
sti
csofaGoodQuest
ionnai
re

• I
tmustbeasshor
taspossi
blet
oavoi
dconf
usi
on.
• I
tmustbest
rai
ghtt
othepoi
nt.
• I
tshoul
dincl
udeopen-
endedandcl
ose-
endedquest
ions.
• Mi
sleadi
ngquest
ionsshoul
dbeavoi
ded.
Sampl
ingMar
ketResear
ch

• Asampl
eispar
toft
hepopul
ati
onchosent
orepr
esentt
hepopul
ati
on.
• Iti
sasyst emat i
cprocessofcoll
ectingorselecti
ngar epresentat
ivefrom
thetotalpopulat
ionwiththebeli
efthattherepresent
ativewillbeartr
ue
characteri
sti
csofthewhol epopulat
ion.
• Iti
sapr ocessofselecti
ngvariablesf
rom t
hepopul
ati
onwiththeidea
thatt
hesel ectedvar
iabl
eswi l
lgivetr
ueinf
ormat
ionaboutal
lthe
vari
ablesoft hepopulat
ion.
• Popul
ati
onr
efer
stot
het
otalnumberofvar
iabl
esf
rom whi
ch
 r
epr
esent
ati
vesar
echosen.
• Iti
sat echni
queofsel
ect
ingapor
ti
onoft
hepopul
ati
ont
hatyouwi
sht
o
study.
Di
ff
erencesbet
weenSampl
ingandaSampl
e

• Sampl
ingi
saprocessofsel
ect
ingpar
toft
hepopul
ati
onwher
easa
sampl
eisapar
tofthepopul
ati
on.
Advant
agesofSampl
ing

• I
treducescost
sofhavi
ngt
osur
veyt
hewhol
epopul
ati
on.
• I
tsavest
ime.
• I
trequi
resf
ewerr
esour
cesascompar
edt
oacensus.
• I
tismor
erel
iabl
east
her
eisaconcent
rat
iononf
eweruni
ts.
• I
tiscompl
icat
edt
hanacensus.
Di
sadvant
agesofSampl
ing

• Sampli
ngerr
or–asampl
eisal
waysl
ikel
ytodi
ff
erf
rom t
hepopul
ati
on
tosomeext
ent.
• Subst
it
uti
onprobl
em –whatcantheinvesti
gatordowhenacer
tai
n
el
ementinasamplei
snotavai
labl
eforinvest
igati
on.
• Conveniencevs.representat
iveness–agoodsampl eisonewhichi
s
repr
esentati
veofthetotalpopulati
on.Thel
argert
hesampl e,
themor
e
repr
esentati
veiti
smor elikel
ytobe.Asconveniencei
ncreases
repr
esentati
venessisli
kelytodecrease.
Sampl
ingmet
hodsar
edi
videdi
ntot
wogr
oups:

• Pr
obabi
li
tysampl
i
ng.
• Non-
Probabi
li
tysampl
ing.
1.Pr
obabi
li
tySampl
ing

• Thesear
ethetechni
questhatareusedtoi
dent
ifyt
her
epr
esent
ati
ve
samplef
rom whicht
heresearchdatai
scoll
ect
ed.
• Theyareconst
ruct
edthatever
ymemberoft
hepopul
ati
onhasaknown
probabi
li
tyi
nthesel
ecti
on.
• I
trequi
restheuseofasampli
ngfr
ame,
thati
s,acompl
etel
istor
i
denti
fi
cati
onofthepopul
ati
on.
1.
1.Random Sampl
ingTechni
que

• Iti
saprobabi
li
tysampl
ingtechni
quei
nwhi chever
yvar
iabl
eint
he
popul
ati
onhassomedegr eeofbei
ngchosenornot.
• Eachvari
abl
einthepopul
ati
onhasanequalchanceofbei
ngsel
ect
edor
notbei
ngsel
ected.
• Var
iabl
esar
esel
ect
edonahaphazar
dpr
ocess.
• Itcanbedonebypulli
ngnamesoutoft
hehatorusi
ngacomput
ert
o
generat
erandom number
s.
Advant
agesofRandom Sampl
ing

• I
tisaneasymethodwhengat
heri
ngresear
chdat
acompar
edt
oot
her
t
echni
quessuchasstr
ati
fi
edsampli
ng.
• I
treducescost
ingmeaningt
hattheresearchcost
scanbemi
nimi
zed
i
nsteadofdeal
ingwi
ththewholepopulati
on.
• I
tsavest
ime.
• I
treducesi
nter
viewerbi
asandr
esear
chdat
aismostl
ikel
ytober
eli
abl
e.
Di
sadvant
agesofRandom Sampl
ing

• I
tmaynotdi
sclosetr
ueinf
ormat
ionaboutthetr
uecharact
eri
sti
csoft
he
whol
epopul
ati
onsinceonl
yafewindivi
dualsar
echosen.
• I
ndi
vidual
slef
tmaybet
heoneswi
thr
elevantdat
a.
• Wit
hrandom sampl
e,t
her
ecanbesomedegr
eeofbi
asi
fiti
snot
pr
operl
yimpl
emented.
• Random sampl
ingi
sverydif
fi
cul
ttousewhilet
hepopul
ati
onisver
y
l
argetot
heextentt
hatsel
ecti
ngarandom samplei
sal
mostimpossi
ble.
1.
2.Syst
emat
icSampl
ing

• Thisisasamplingtechniqueinwhichtheresearcherdeter
mi nest
he
samplebyfir
stpredeterminingthest
arti
ngpointandt henusesa
systemat
icprocesstocol l
ectvari
abl
esconstit
utingasampl e.
• Systemat
icsampli
ngenabl
estheresearchert
ohaveast
art
ingpoi
ntand
thensel
ectever
yntht
erminthatorder
.
Advant
agesofSyst
emat
icSampl
ing

• I
tmayr
educet
hel
evelofi
nter
viewerbi
assi
ncevar
iabl
esf
rom whi
ch
 dat
aist
obecol
lect
edi
schosensyst
emat
ical
lyorusi
ngaknownmet
hod.
• Iti
safastwayofgat
her
ingdat
aespeci
all
ywhendeal
ingwi
thl
arge
popul
ati
ons.
• I
treducescost
sincur
redwhenr
esear
chi
ngf
rom mar
ket
ingdat
a.
• I
tsavest
imeneededt
ogat
herdat
a.
Di
sadvant
agesofSyst
emat
icSampl
ing

• Theel ementofsubject
ivi
tywillneverbeeli
minatedgivent hatt
he
researcheral
readyknowst hevariabl
eswhichcanbesel ectedandthe
met hodcanbet wist
edsot hatitwil
lsui
ttheresearcher’
sexpectati
ons.
• Impor
tanti
nformat
ioncanbemissedfrom var
iabl
esski
ppedwhi
le
sel
ect
edvariabl
esmighthavel
essrel
evantinf
ormati
on.
• I
trequi
rest
heuseofsampl
ingf
rameswhi
chmaynotber
eadi
lyavai
labl
e.
• Iti
sdif
fi
cul
ttoexact
lyknowwher
etost
art
,atwhati
nter
valt
osel
ectt
he
vari
abl
e.
1.
3.St
rat
if
iedRandom Sampl
ingTechni
que

• I
tisasampli
ngtechni
queinwhi
cht
hepopul
ati
onunderst
udyi
sdi
vided
i
ntosever
alst
rat
us/cl
asses.
• I
tinvolvesdivi
dingthepopul
ati
onunderstudyintosubgr
oupsaccordi
ng
t
odi f
ferentcharact
eri
sti
cssuchasage,sex,st
atus,i
ncome,l
ocati
on,and
l
if
estyleetc.
• Fr
om t
hesest
rat
asest
abl
ished,
var
iabl
esar
ethenr
andoml
ysel
ect
ed.
• Random sampl
esf
rom var
iouscat
egor
iespr
ovi
der
esear
chdat
a.
Advant
agesofSt
rat
if
iedSampl
ingTechni
que

• Moreaccurat
einfor
mationi
scoll
ectedcompar
edt
oot
hert
echni
ques
suchasrandom sampl
ingtechni
que.
• Itconsi
der
sindivi
dualdi
ff
erencescompar
edt
orandom sampl
ingandi
t
givesmorerel
evanti
nfor
mat i
on.
• Datacol
lect
edi
smor
erel
iabl
esi
nceuni
for
mit
yinvar
iabl
esi
stakeni
nto
account
.
• Itr
educest
hel
evelofhumansubj
ecti
vit
ysi
ncet hepopul
ati
onisfi
rst
str
ati
fi
edandt
henrandom sampl
esarecol
lect
edf r
om di
ff
erentst
rat
as.
Di
sadvant
agesofSt
rat
if
iedSampl
ing
 • I
tincr
easesawor
kloadascompar
edt
orandom sampl
ing.
• I
tist
ime-
consumi
ngbecauseal
otofpr
ocessesar
einvol
vedsoast
o
i
dent
if
ythesampl
es.
• Li
keot
herprobabi
li
tysampl
ingtechni
ques,
thereisneedt
ousea
sampl
ingf
rameandi tmaynotbeeasil
yavai
lable.
• I
tmaybemor
ecost
lywhencompar
edt
oot
hert
echni
ques.
2.Non-
Probabi
li
tySampl
ingTechni
ques

• Thesearesampli
ngtechniquesi
nwhi
chvar
iabl
esunderst
udyhaveno
probabi
li
tyofbei
ngselect
ed.
• Non-pr
obabi
li
tysampli
nginvol
vet
heuseofmet
hodst
osel
ectvar
iabl
es
whichwil
lmakearesearchsampl
e.
2.
1.Cl
ust
erSampl
ingTechni
que

• I
tiswher
ebyt
her
esear
chsampl
esar
eor
gani
zedi
ntocl
ust
ers.
• Itinvol
vestheuseofsampl
ingf
ramesf
rom whi
chi
ndi
vidual
smaki
ngup
cluster
sareselect
ed.
• I
ndi
vidualvar
iabl
esareor
gani
zedi
ntocl
ust
ersast
heyar
eident
if
iedf
rom
t
hesampl efr
amelist
.
Advant
agesofCl
ust
erSampl
ing

• Iti
snormal
lyusedwhent
heresearcherdoesnothavet
heent
ir
esetof
vari
abl
esmakingupasampl
ingframe.
• Iti
snormal
lyusedwi
thr
andom sampl
ingt
echni
quet
oincr
easeaccur
acy
ofdat
acoll
ected.
• I
tcanal
sobeusedwhent
hepopul
ati
oni
sdi
sper
sedorscat
ter
ed.
• I
tmi
nimi
zesr
esear
chcost
s.
• I
tal
sor
educest
imewast
agesi
nresear
ch.
Di
sadvant
agesofCl
ust
erSampl
ing

• I
tmi
ghtbedi
ff
icul
ttousei
ntheabsenceofasampl
ingf
rame.
• I
tincr
easesal
otofworktoresear
cher
s,f
orexampl
e,t
her
eisneedt
o
r
andomlysel
ectvar
iabl
esfr
om thesampl
ingfr
ame.
• Itcannotbeeffect
iveonit
sownbutitneedst
obei
ncor
por
atedwi
th
otherrandom samplingt
echni
ques.
2.
2.Quot
aSampl
ing

• I
tiswhent
hepopul
ati
onunderst
udyi
sdi
videdi
ntosubgr
oups.
• Thevar
iabl
esar
egr
oupedaccor
dingt
odi
ff
erentchar
act
eri
sti
cssuchas
age,
sex,et
c.
• Thepopul
ati
oni
sdi
videdj
ustasi
nst
rat
if
iedsampl
ing.
• Indi
vidual
sint
hesamegroupar
ethensel
ect
edonar
andom basi
sbut
areselect
edusi
ngaknownmethod.
Advant
agesofQuot
aSampl
ing

• I
tismor
erel
iabl
e,asmor
eaccur
atei
nfor
mat
ioni
scol
lect
ed.
• I
tcoverst
heweaknessesf
acedinrandom sampl
ingt
echni
quewher
eby
i
ndi
vidual
sar
eselect
edonar andom basi
s.
• I
tconsidersdif
fer
encesbetweenvar
iabl
esi
napopul
ati
onandt
her
efor
e
morerelevantdat
aiscol
lected.
Di
sadvant
agesofQuot
aSampl
ing

• Iti
stime-
consumi
ngsi
nceanumberofpr
ocessesar
einvol
vedi
n
deter
mini
ngthesampl
e.
• Iti
nvol
vessomeelementsofhumanj
udgmentandt
hismayi
ntr
oduce
somebiasint
heresear
ch.
• I
tisver
yexpensi
vecompar
edt
oot
hert
echni
ques.
• I
tdemandshi
gherl
evelsofmentalreasoni
ngandski
ll
sandt
her
efor
eit
r
equi
reshi
ghl
yexper
iencedresear
chers.
2.
3.Mul
ti
stageSampl
ingTechni
que

• Iti
sasampli
ngtechniquewherebyvar i
ablesar
esel
ect
edasmanytimes
aspossi
blef
rom dif
ferentst
ages,forexample,
sampl
escanbesel
ected
atrur
all
evel
,pr
ovinci
allevel
,di
str
ictlevel
etc.
• Sampl
escol
lect
edatvar
iousst
agesar
etheni
nter
viewed.
• I
twor
ksi
nconj
unct
ionwi
thcl
ust
ersampl
ingt
echni
que.
Advant
agesofMul
ti
stageSampl
ing

• I
tprovidesmor
eaccur
atedat
asi
ncesampl
esar
ecol
lect
edatmany
l
evels.
• Dat
acol
lect
edwi
l
lbemor
erel
iabl
eandr
elevant
.
 • I
tcanbeusedt
ocount
ert
heweaknessesofot
hermet
hodsofsampl
ing.
Di
sadvant
agesofMul
ti
stageSampl
ing

• I
tisamor
eti
me-
consumi
ngmet
hodofsampl
ing.
• I
tincr
easest
heamountofwor
kinvol
vedwhenr
esear
chi
ng.
• Italsoi
ncl
udeel
ementsofhumanj
udgmentsi
ncevar
iabl
esar
esel
ect
ed
usingaknownmethod.
• I
tincl
udescul
ti
vat
ionofalotofr
esourcessi
ncesampl
esar
ecol
lect
edat
manystagesandt
hisincr
easescost
s.
“
Snowbal
li
ng,
judgment
al,
int
erval
,sampl
ingpr
obl
em”

I
nter
valSampl
ing

• I
trequi
rest
hesel
ect
ionofuni
ts/
indi
vidual
sinasequence.
• Thi
sper
iodsequencei
sbasedonapar
ti
cul
ardayoft
hemont
h.
Judgment
alSampl
ing

• Thiscanonl
ybeusedwhent heresear
cherf
ullyknowswhi
cht
ypeof
peoplear
etypi
caloft
hepopulat
ioninquest
ion.
Snowbal
li
ngSampl
ing

• Thistechni
quei
nvol
vestwoormor
estagesofsampl
ing,
forexampl
e,if
researcher
swant
edtoknowmostpowerf
ulmembersofanati
onalt
rade
union:
• Itmightf
ir
staskal
ltheexecut
ivemember
sofaver
ylar
geuni
ont
o
provi
dealist
.
• Eachper
sonont
hei
nit
iall
istwoul
dal
sobeaskedt
opr
ovi
deal
ist
.
• Asar
esul
toft
his,
alongerover
alll
istwi
llbedr
awnup.
• Thel
istoft
henamesi
ssnowbal
li
ng(
growi
ng)
.
El
ast
ici
tyofDemand

• Iti
sanumeri
calmeasureofr
esponsi
venessofonevar
iabl
efol
lowi
nga
changei
nconsumerbehavi
or,
othert
hingsbei
ngequal
.
• I
tisthedegreeofr
esponsi
venessofquant
it
ydemandedt
ochangesi
n
marketvar
iabl
es,f
orexample,
pri
ce,i
ncomeetc.
• Demandcanbei
nthef
orm ofpr
iceel
ast
ici
ty,
incomeel
ast
ici
ty,
cross
 el
ast
ici
ty.
El
ast
icDemand

• Thisiswhenasmal l
changeinonevar
iabl
ecausesabi
ggerchanget
han
proport
ionat
echangeinquant
it
ydemanded.
I
nel
ast
icDemand

• Alargechangei
nonevar
iabl
epr
oducesonl
yasmal
lerchangei
n
quanti
tydemanded.
TypesofEl
ast
ici
tyofDemand

1.Pr
iceEl
ast
ici
tyofDemand

• Refer
stot
her
esponsi
venessofquant
it
ydemandedt
ochangesi
nthe
pr
ice.
• I
tiscal
cul
atedasf
oll
ows:

Pr
iceel
ast
ici
tyofdemandhasf
ivet
ypesnamel
y:

1.
1.Pr
iceEl
ast
icDemand

• Thisoccurswhent herat
iocal
culat
edisgreat
erthan1.Thismeansthata
l
esst hanproport
ionat
echangeinpricei
sfoll
owedbyahi ghert
han
proporti
onatechangeinquant
it
ydemanded.
1.
2.Pr
iceI
nel
ast
icDemand

• Thisoccur
swhent herat
iocal
culatedislesst
han1.Thismeanst
hata
hi
gherproport
ionat
echangeinpriceisfoll
owedbyalessthan
propor
ti
onatechangeonquanti
tydemanded.
1.
3.Uni
tar
yDemand

• Thisi
swhent herat
iocal
cul
atedisequalto1.Thi
siswhenpropor
ti
onat
e
changei
npriceisequalt
otheproport
ionat
echangeinquant
it
y
demanded.
1.
4.Per
fect
lyEl
ast
icDemand

• Iti
sademandcurvethatisfi
xedatacertai
npri
celevel
.Elasti
cit
yof
demandisequalt
oinfi
nit
y.Buyersarepr
eparedtobuyalltheycanatt
he
samepri
ceandnoneatanyot herpri
ce.
1.
5.Per
fect
lyI
nel
ast
icDemand

• Thisi
swhentherati
oisequaltozer
o.Quant
it
ydemandeddoesnot
changeaspri
cechanges.Changesi
npri
cehavenoeff
ectonquant
it
y
demanded.
2.I
ncomeEl
ast
ici
tyofDemand

• Ref
erst
other
esponsi
venessofquant
it
ydemandedt
ochangesi
n
i
ncome.
• I
tisameasureofhowaconsumervari
eshi
sdemandf
oracommodi
ty
whent
hereisachangei
nhisincome.

• Whent heper cent

agechangei
nquant
it
ydemandedisgr
eaterthanthe
percentagechangeinincomet
henthecommodit
yissai
dtobei ncome
elast
ic,thati
s,thedemandoft
hecommodit
yincr
easesatafasterrat
e
thanincome.
Nor
malgoods

• Thesear
egoodswhosedemandi
ncr
easesasi
ncomei
ncr
eases.
• Ifi
ncomeel
ast
ici
tyofdemandi
sposi
ti
ve,
thent
hegoodsar
enor
mal
goods.
I
nfer
iorgoods

• Thesearegoodswhosedemanddecr
easesasi
ncomei
ncr
eases.I
ncome
el
asti
cit
ywillbenegat
ive.
3.Cr
ossEl
ast
ici
tyofDemand

• Iti
sther
esponsi
venessofquant
it
ydemandedi
nrespectt
ochangesi
n
pri
ceofanot
hergood.
• I
tiscal
cul
atedas:

• I
tshowst
her
elat
ionshi
pbet
weensubst
it
utesandcompl
ement
s.
• Subst
it
utesar
egoodst
hatcanbei
npl
aceofanot
her
.
• Compl
ement
sar
egoodst
hatar
ejoi
ntl
yused,
forexampl
e,carandf
uel
.
Fact
orsDet
ermi
ningEl
ast
ici
tyofDemand
 • Avai
labi
li
tyofsubst
it
utes.
• Por
ti
onofi
ncomespentont
hepr
oduct
.
• Addi
cti
on.
• Nat
ureoft
hepr
oduct
.
• Ti
meper
iod.
I
mpor
tanceofEl
ast
ici
tyofDemand

• Assi
stf
ir
mswhenmaki
ngpr
ici
ngdeci
sions,
forexampl
e,l
owpr
icesi
n
el
ast
icmarket
s.
• Faci
li
tat
espr
icedet
ermi
nat
ion.
• Tof
ir
ms,
ithel
psnot
ecompet
it
ors,
forexampl
e,subst
it
utes.
• I
tassi
stsi
npl
anni
ng.
• I
tcanbeusedt
oeval
uat
etheef
fectofgover
nmentt
axesonr
evenue.
Di
sadvant
agesofEl
ast
ici
tyofDemand

• I
tisbasedonest
imat
edl
evel
sofdemandandpr
icechanges.
• I
tcanonl
ymakesenset
opeopl
ewhoknowi
t.

I
MPACTOFI
CTONMARKETI
NGMANAGEMENT

• Technologyhasi
mpr ovedtheabil
it
ytocoll
ectandorgani
zemar ket
ing
data,t
hechannelst
hebusi nesscanusetoreachconsumers,andthe
processofdevel
opi
ngdi f
ferentt
ypesandformatsofadver
tisi
ngassets.

• Businesseshavemoredata,moremarket
ingfor
mat s,andmoreonl
ine
placestocommunicatewi
thconsumer s(
thati
s,socialnet
wor
ks,bl
ogs,
searchengines,
YouTubevideos,
etc.
).

• From theconsumerside,market
inghasbecomeincreasi
ngl
yi nt
egr
ated
i
ntoeverydayli
fe.Fr
om Facebookadvertisi
ngtoGooglepai
dsearch
result
s,t
heaverageconsumerhasani ncreasi
ngl
ypersonal
izedanddata
-
dr i
venexposureto‘
relevant
’admateri
als.

• Thankst
otheenor
mousamountofi
nfor
mat
ionavai
labl
e,pr
imar
il
yfr
om
 socialnetworksandbr owsingbehavior
,consumersarealsobeing
i
mpact edfrom apri
vacypointofview.From whatwewatchonTVt owho
ourfriendsaretowhatcar eerpat
hswear eon,al
loft
hisi
nf ormati
onis
beingut i
li
zedthankstosocialnet
wor ksandbrowsercookies.Thi
s
createsaccuratel
ycateredads,al
beitalongsi
devali
dconcer nsofpri
vacy.

• TheInternetischangi ngtheproductandser vicesavailabl einabi gway.

Inprofessi
onalser vi
ces, t
heInternetisallowi ngf i
rmst odevel opnew
‘
packaged’ products–somet imesbypr ovidingi nt
egrat edorr elated
servi
cessuchasf inancialandest at
eagent sser vi
ces.Usi ngext r
anets
meanst hatcertainclient
scanbepr ovidedwi thaccesst ot hef i
rm’s
i
nternalsystemswhi chbothaddsval ueand‘ l
ocksi n’clientstoyour
servi
ce.Theexpansi onoft heInternetiscr eatingnewi ssuesi nt ermsof
contract
ualrightsandcopyr ighttoo–newser viceareasf orlawyer s.

• TheI nternetall
owsal otofi nformat i
ont obeobt ainedeasi l
yby
customer s.Onesi deef f
ecti sthatitismucheasi ertocompar eprices
makingpr i
cecompet i
ti
onf iercer.Theuseofcomput ersyst emst oreduce
thetimeandef for ti
nvolvedi npr oducinganddel iveri
ngpr oduct sand
servi
cesmeanst hatsuppl i
erscanei therincreaset hei
rmar ginsoroffer
thesameser vicesatal owerpr i
ce.Commodi tizationisalsooccur r
ing
wherepeopl e‘package’ newpr oductsandser vicest ogetherandof f
er
them, viatechnol ogy,atal owerpr ice(thehighvol ume, l
owval ue
approach) .On-li
nepayment( t
hroughcr editcar ds)makesi tmor e
conveni enttoclients/customer sandcanmakecashcol lectionquicker
andcheaperf orsuppl iers–agai nincreasingt hepossi bi
lit
yofpr i
ce
reductions.Yett heI nt
ernetcanmakei tmor edi fficul
ttoof fer
discr
imi natorypr i
cing( i
.e.differ
entpr i
cesf ordi f
ferentcust omergr oups)
.

• Thedevel opment sinthepowerofdat abasesmeanst hatdirect

mar ketingisr eallycomi ngtot hef oreal l
owi ngnewsegment stobemor e
easi l
yidentifi
edandal l
owingsegment s-of -
onet obepr ofit
ablyt
argeted.
Per missionmar ketinghasbeenbor nbuti sst i
llinitsi
nfancy.The
Internetisalsoagr eatsourceofi nf ormat i
on–al l
owingyout okeepup
withyourcompet it
ors’andclients’ activi
ties.On- li
nepollsandsurveys
canyi eldal argeamountofaddi t
ionali nformat ionaboutyourclient
s.It
alsomeanst hati ti
smuchmor edifficulttor et
ai nanyform of
differenti
ati
onwhenyourser vicesandappr oachar eclearforal
l–
i
ncl udingyourcompet i
tor
s–t osee.TheI nternetalsoallowsyout o
reachamuchwi dergeogr aphicalspr eadt hanwaspr evi
ouslypossibl
e.
 TheInternetmakesmar ketsmor
eeven–al l
owingsmal lerpl
ayerst o
compet ewithbigplayersandoverseascompet i
tor
st oenternewmar ket
s
wit
hease.Somear guethattheI
nterneti
sjustanotherchannelwhi ch
needsmanagi ngjustt
hesameasot herchannel
s(e.g.retai
loutl
ets,
warehouses, dir
ectmailetc.)
.

• Digi
taltelevi
sionandt hebr oadcasti
ngrevolution(incl
udingwebTV)
makesmassadver ti
singpr acti
calandaffordableformuchsmal ler
compani esthanpr eviously.Thereareallsort
sofnewadver t
isi
ngmedia
nowavai labl
e–el ectronicpost er
s,i
nformationkiosks,banner
advert
isement s,on-l
inedirectoryentr
iesetc.Inter
actionandmultimedi
a
arechallengi
ngt hecr eat
ivet r
eatmentsofadver ti
singaswell.

• Databaset echnologyal i
gnedwi thdigi
talpr i
nti
ngofshor trunsoffull
col
orpr omot i
onalmat erial
shashadadr amat i
cimpactondi r
ectmail.
Emai ll
ist
smakei teasiertohavemor eregularandf ocused
communi cat i
onswi t
hkeycust omersandcl i
ents.Theuseofcal lcenter
s
andcomput erassistedvoicet el
ephonyar er ewri
ti
ngt hebookson
customerser viceandf ulfi
ll
ment.Permi ssionmar ket
ingi swher e
customerspr ovideinformat i
onaboutt heirneedsandpr eferencesand
agreetothesuppl ierusingt hi
sinfor
mat i
onf orf
urthermar keting
acti
viti
es.

• Brochur esandpubl i
cationsar enowel ectronic,int
eractiveandt ailoredt o
thespeci f
icneedsandi nterestsofsmal lermar ket
sandeveni ndi viduals.
Ont heWor ldWi deWeb( WWW) ,t
hecust omerdeci deswhati nf ormat i
on
theyrequi reandi nwhator dersosomel evelofsuppl i
ercont rolisl ost .
Deskt opdesi gnandpubl i
shi ngisr educingt heneedf orandcostof
expensi vedesi gner
sandpr i
nters–sadl y, gooddesi gni sbecomi ngr arer
asmor eamat eurst
rythei rhands.Cl i
entcommuni cationpr ogrammes
aremuchmor eeasilymai ntainedt hrought heuseofemai landel ect ronic
communi cati
ons–whi chal sor educest hecostofpost age.Medi a
rel
ationscanbeenhancedbypr ovidingbackgr oundi nformat i
onand
newsr eleasesonwebsi t
es.TheI nternetenvi ronmenthasgener ateda
wider angeofaddi t
ionalmedi awhi char ehungr yforgoodcont ent .

• Thoset askedwi thsell

ingcanusetheinter
nett
ounder takefastr
esearch
i
ntopr ospects.Electr
onicpresent
ati
onscanbeeasi l
ytailor
edand
presenteddesksi deorr emotel
y(byemailort
eleconfer
ence).Databases
haverevoluti
oni zedcli
entandcontactmanagementsyst emsandf iel
d
salesstaffef
f ecti
venessandsupervisi
on.
• Theuseof3Dsi mulat
ionsandvir
tualr
eal
it
ymeansyounol ongerhave
tocreat
earealexhibi
ti
onspaceorshowsuites.Giveawaysareoften
technol
ogyf
lavored(mousemats,scr
eensavers,f
reesoftwareetc.
).

Chapt
er9

QUESTI
ONS:PRODUCTI
ON/
OPERATI
ONSMANAGEMENT

• Expl
aint
hepr
oduct
ionf
unct
ion.
[
3]
• Expl
ainanyfourf
act
orsofpr
oduct
ion.
[12]
• Expl
aint
hethr
eest
agesofpr
oduct
ion.
[
6]
• St
ateanyf
ivemet
hodsofpr
oduct
ion.
[5]
• Expl
ainanytwomet
hodsofpr
oduct
ion.
[4]
• Howusefuli
sbat
chpr
oduct
iont
oamanuf
act
urer
?
[
6]
• Di
scussthef
act
orst
obeconsi
der
edwhenchoosi
ngt
hemet
hodof
pr
oduct
ion. [15]
• Whati
smeantbyt
hef
oll
owi
ngt
erms:
• Pr
ojectpr
oduct
ion.
[
2]
• Bat
chpr
oduct
ion.
[2]
• Jobproduct
ion.
[2]
• Fl
owpr
oducti
on.
[2]
• Whatf actor
sshoul
damanuf
act
urerconsi
derwhenswi
tchi
ngf
rom bat
ch
tofl
ow [ 4]
producti
on?
• Eval
uat
ethemet
hodsofpr
oduct
ionavai
l
abl
etoamanuf
act
urer
.
[
25]
• Whati
smeantbyt
het
erml
eanpr
oduct
ion?
[
4]
• Expl
ainanyt
hreeaspect
sofl
eanpr
oduct
ion.
[6]
• Howusefuli
sleanpr
oduct
iont
oamanuf
act
urer
?
[
8]
• Def
inet
heter
m wor
kst
udy.
[
2]
• Expl
ainanytwoaspect
sofwor
kst
udy.
[6]
• Eval
uat
etheusef
ulnessofmet
hodst
udyt
oamanuf
act
urer
.
[
6]
• St
ateanytwoaspect
sofwor
kmeasur
ement
.
[
2]
• Ofwhati
mpor
tancei
sthewor
kst
udypr
ogr
am usef
ult
oamanuf
act
urer
?
[
6]
• Usi
ngexampl
es,
dist
ingui
shf
ixedcost
sandvar
iabl
ecost
s.
[
4]
• Di
scusstheimpor
tanceofcosti
nfor
mat
iont
oaf
ir
mint
he
manufact
uri
ng [13]
i
ndust
ry.
• Out
li
neanythr
eecost
ingt
echni
ques.
[3]
• Di
ff
erent
iat
eabsor
pti
oncost
ingandmar
ginalcost
ing.
[
4]
• Howusefuli
sabsor
pti
oncost
ingasacost
ingt
echni
que?
[
6]
• Underwhatci
rcumst
ancesmaymar
ginalcost
ingbeappl
ied?
[
5]
• Def
inet
hef
oll
owi
ngt
erms:
• Mar
ginofsaf
ety.
[
2]
• Br
eakevenpoi
nt.
[2]
• Eval
uat
etheusef
ulnessoft
hebr
eakevenanal
ysi
sasadeci
sionmaki
ng
tool
. [25]
• Expl
ainanyt
womet
hodsofpl
antl
ayout
.
[4]
• Di
scussthef
act
orsdet
ermi
ningt
hel
ocat
ionofaf
ir
m.
[
15]
• Evaluat
ethemet
hodswhi
chcanbeusedbyaf
ir
mtoi
mpr
ove
product
ivi
ty. [
25]
• Def
inet
heter
m qual
it
y.
[
2]
• Evaluat
etheusefulnessoft
hequal
it
ycont
rolt
echni
quet
hatcanbeused
byaf i
rm [ 25]
i
nt hemanufact
uringsector
.
• Eval
uat
etheusef
ulnessofwor
kmeasur
ement
.
[
6]
• Howusefuli
stot
alqual
it
ymanagementasaqual
it
ycont
rolt
echni
que?
[
12]
• Def
inet
hef
oll
owi
ngt
erms:
• Pr
oduct
ivit
y.
[3]
• Ef
fi
ciency.
[
3]
• Ef
fect
iveness.
[
3]
• Di
sti
ngui
shef
fect
ivenessandef
fi
ciency.
[
3]
• Di
scussthedi
ffer
entt
echni
quest
hataf
ir
m canusei
ninvent
ory/
stock
[
25]
management.
• St
ockusual
lyt
akest
hreef
orms.Whi
char
ethey?
[
3]
• Def
inethet
ermi
nvent
ory.
[2]
• Underwhatci
rcumst
ancesmayj
usti
nti
met
echni
quebeappr
opr
iat
e?
[
4]
• Thejustinti
memet hodofst
ockmanagementi
snotcompat
ibl
ewi
thf
ew
[
15]
product
ion.Discuss.
• Whati
smeantbyt
hef
oll
owi
ngt
erms:
• Economi
cor
derquant
it
y.
[
2]
• Economi
cor
derpoi
nt.
[
2]
• Buf
ferst
ock.
[2]
• Leadt
ime.
[
2]
• Usingadiagram,expl
ainhowamanuf
act
uri
ngf
ir
m canusecr
it
icalpat
h
analysi
s [ 25]
i
ndeci si
onmaking.
• Howusefuli
scr
it
icalpat
hanal
ysi
sasadeci
sionmaki
ngt
ool
?
[
25]
• Def
inet
hef
oll
owi
ng:
• Cr
it
icalpat
h.
[
2]
• Dummy.
[
2]
• Fl
oatact
ivi
ty.
[
2]
• Pr
oceedi
ngevent
.
[
2]
• Expl
ainanyt
hreet
ypesoff
loatact
ivi
ti
es.
[6]
 • Qual
it
yguar
ant
eesbusi
nesssuccess.Di
scuss.
[
15]

PRODUCTI
ON/
OPERATI
ONMANAGEMENT

Productionrefer
stotheconversionortr
ansmi ssionofrawmat eri
alsint
osemi -
fi
nishedandf ini
shedgoods.Itrefer
stothepr ocessesinwhichinputsare
i
ntegratedthroughvari
ousprocessesinor dertoobtainout
put.Producti
oni s
theresponsibil
it
yoftheproductionmanagerordepar tmentwherethevar i
ous
processesar econnect
edtogethertoachievethedesiredoutput.

Pr
oduct
ionFunct
ion

I
nput
s Pr
ocesses Out
put
s

Inf
ormati
on Conversi
on Goodsandser
vices
Capit
al Transf
ormati
on
Laborandrawmat
eri
als

Fact
orsofPr
oduct
ion

Ther
ear
efourf
act
orsofpr
oduct
ion:

• Land–Thi
sist
hesit
ewhereproduct
ioni
staki
ngpl
ace,
itmaybeont
he
l
andori
nwater
.Therewar
dforlandi
srent
.
• Labor–Itr
efer
stohumanskill
s/physi
calef
for
tusedi
npr
oduct
ion.The
rewar
dforl
aborissal
aryorwages.
• Capit
al–Iti
stheamountofmoneyneededt
ost
artabusi
ness.The
rewar
dforcapi
tal
isi
nter
est.
 • Entr
epreneur
ship/
Enterpr
ise–Theseareski
ll
srequi
redt
obeusedi
na
busi
ness.Therewardisprof
it
/i
nter
est
.
Met
hods/
For
ms/
TypesofPr
oduct
ion

• Ther
earef i
vemainmethodsofproduct
ionwhichar
epr
oject
,bat
ch,
j
obbing,
floworcont
inuousandli
neproduct
ion.
Bat
chPr
oduct
ion

• Iti
saproduct
ionprocessi
nwhi
chpr
oduct
sar
epr
oducedi
ntot
all
y
dif
fer
entbat
ches.
• Iti
nvol
vesproducti
onofdi
ff
erentt
ypes,
ver
sionoft
hesamepr
oduct
,for
example,
freezi
ts,
paint
.
• Thesamepr
oducti
sdi
ff
erent
iat
edi
ntot
woormor
epr
oduct
s.
• Thepr
ocessal
lowsonepr
oductt
obedi
ff
erent
iat
edaccor
dingt
ocol
or,
wei
ghtandsi
ze.
• Batchproduct
ioninvolvesuseofmachi
ner
ywhi
chi
sabl
etoadaptt
othe
product
ionofdif
ferentbatches.
• Machi
nesarelaiddownaccor
dingt
oor
derofpr
oduct
ionandgoodsar
e
pr
oducedaccordingt
odemand.
• Batchproduct
ioncanbeusedi
nthepr
oduct
ionofsugar
,br
eadand
fr
eezit
s.
• Ifacompanyi
sproduci
ngbr
ead,
dif
fer
entbat
ches,
forexampl
e,whi
te,
brownandwholewheat
.
• Thereisneedtocl
eanuptheequipmentbeforeanotherbat
chbecause
di
ffer
entbatcheswi
llgot
hroughsimi
larprocessesofproduct
ion.
• Bat
chproduct
ioni
sint
ermi
tt
edinnat
uremeani
ngt
hatonebat
chi
stobe
compl
etedbef
oret
henextbat
ch.
Advant
agesofBat
chPr
oduct
ion

• Itr
esult
sint
heprovi
sionofavari
etyofgoodssi
nceconsumer
sar
e
suppl
iedwit
hdi
ff
erentbatchesofgoods.
• Itismostsuit
abl
ewhenproducinggoodsanditisdi
ff
icul
ttopr
oducea
singl
eunitatati
me,
forexample,i
tisi
mpossibletopr
oduceoneloafof
breadatatime.
• Bat
chproduct
ionresul
tsi
nanincreasei
ncust
omergoodwil
lwhich
bui
ldst
hecorporat
eimage,f
orexample,
theor
gani
zat
ion,
because
 pr
oduct
sar
epr
ovi
dedaccor
dingt
odi
ff
erentt
ast
esandpr
efer
ences.
• Iti
sal essexpensiveproducti
onprocessascomparedtoot
her
producti
onprocessesbecausebat chproduct
ionmakesuseofsi
mpl
e
machineryandr equir
eslit
tl
ecapi
taltoestabl
ish.
• Therear
elesscoststotheorgani
zati
oninter
msofwar ehousingbecause
batchpr
oducti
onrequir
esthatgoodsproducedshoul
dmat chthel
evelof
demandandthereisnoneedt oholdmaximum rawmat er
ials.
Di
sadvant
agesofBat
chPr
oduct
ion

• Itmi
ghtbecost
lyt
othef
ir
m si
ncether
eisneedt
oinst
allwar
ehousi
ng
andsecur
it
ymechani
smsbecauseofst
ocks.
• Thechangesinconsumerprefer
encesmightcostt
heor
gani
zat
ionasi
t
st
il
lhol
dslargestocksofunf
ashionabl
egoods.
• Thereisneedformachi
nesandlabort
obef
lexi
blesot
hatavar
iet
yof
productscanbeaccommodated.
• Ther eislossofeconomiesofscal
emeani ngt
hatbat
chpr oduct
ion
resultsinincr
easedunitcost
sofproduct
ionduetopurchasingofr
aw
mat eri
alsinsmallerbat
ches.
• Someresourceswil
lbelyi
ngidl
eorunuti
li
zedwhenshi
ft
ingonebat
cht
o
anot
herresul
ti
nginlossofpr
oduct
ion.
• Iti
salaboriouspr
ocessmeani
ngthatduri
ngperi
odsofchange,
ther
eis
needtocleantheequi
pmentandmachiner
ybeforest
art
inganot
her
batch.
• Itconsumesmor
eproductionti
memeaningthatmostoft
hetimeis
wastedwhenmakingpreparat
ionsf
ordif
fer
entbat
chesduri
ngchangeof
ovensandmaint
enanceofequipmentandmachiner
y.
• Itr
equir
est
hatmanagersmustholdworkinpr
ogresst
oreducest
ockcut
costsandt
hismi
ghtincr
easewarehousi
ngcosts.
Pr
ojectPr
oduct
ion

• Iti
salargescal
eproduct
iontechni
quethati
nvolvedauni
quet
otalwor
k
packagewhichwil
lbecompletedinphaseswit
hinaspeci
fi
edperi
odof
ti
me.
• Themethodinvolvesest
abl
ishi
ngpr
oject
ssuchasbui
ldi
ngand
const
ruct
ionofroads.
• Apr
ojecti
sat
otalwor
kpackaget
hatcombi
nest
heef
for
tsofdi
ff
erent
 r
esear
cher
sthatshoul
dbecoor
dinat
edt
oobt
aint
heconduct
edobj
ect
ive.
• I
tinvol
vespl
anni
ngandqual
it
ati
vet
echni
quessuchasnet
wor
kanal
ysi
s.
• Workersmustworkwi
thi
nthest
ipul
atedpostboundar
ysoast
omeett
he
budgetort
arget
.
• Worker
smustsat
isf
ythecust
omer
s’speci
fi
cat
ionsandt
hendel
ivert
he
pr
oject
.
• Rawmat
eri
alsar
etr
anspor
tedt
othesi
tewher
ethepr
oducti
sassembl
ed.
• Iti
nvol
vessubcontr
acti
onofacti
vit
iesmaki
ngupapr
ojectt
ofaci
li
tat
e
complet
ionofaproj
ectwit
hint
herequir
edti
me.
Advant
agesofPr
ojectPr
oduct
ion

• Thewholeprojectcanbebrokendownint
ovari
ouscomponent
sandt
he
fi
rm wouldconcentrat
eonmajorcomponent
s,t
herebyi
ncr
easi
ng
eff
ecti
venessandr educi
ngcost
s.
• Iti
slikel
ytoproducethepr
oductthatmeet
sthecust
omers’
specifi
cat
ionssincet
hecustomerwouldspeci
fyt
henat
ureofpr
ojectand
approveitateachandever
ystage.
• Itgi
vesvari
etyt
oempl
oyeessi
ncepr
oject
sof
ferdi
ff
erentchal
lengest
o
employees.
• I
tinvol
veslowt
ransport
ati
oncost
sgivent
hatrawmat er
ial
sar
e
t
ransport
edtot
hesiteandther
eisnoneedfordi
str
ibuti
on.
• Iti
sthebestmethodsui
tabl
ewhenest
abl
ishi
ngl
argepr
oject
ssuchas
buil
dings,
roadsanddams.
• Theorgani
zat
ionwi
llincurl
esswar
ehousi
ngcost
sincompar
isont
o
otherpr
oduct
ionmethods.
• Itmayr esul
tinthecreat
ionofempl
oymentt othecommuni
tywherethe
projectisi
mpl ement
ed;oncethepr
ojectst
arts,wor
ksar
erequi
redfr
om
withinthearea.
• Itr
esult
sinful
landwiseut
il
izat
ionofresour
cesduetotheuseof
quali
tat
ivet
echni
quessuchascr i
ti
calpat
hanalysi
s(net
workanal
ysi
s).
Di
sadvant
agesofPr
ojectPr
oduct
ion

• Itmayr
esulti
npr oj
ectsyndrome,thati
s,thedif
fi
cul
tyi
nwhi chaproject
canbecompleted.Proj
ectsaresai
dt odisbandandemployeeswi
llfear
fort
hei
rjobsecurit
ysincetheymightbedi smi
ssedwhentheproj
ectis
 compl
etedandt
hismaydel
ayt
hecompl
eti
onoft
hepr
ojectr
esul
ti
ngi
n
poorr
esul
ts.
• I
tisassociat
edwi
thapassi
vemarket
ingst
rat
egy.Theor
gani
zat
ionwi
ll
waitunt
ilt
hecust
omercomesagai
n.
• I
tinvol
vesal
otofsunkcost
sformachi
nesdesi
gnedf
orpar
ti
cul
aruse.
• Iti
sveryexpensi
veespeci
all
ywheni
mplementingabigand
complementingproj
ect
.Thi
smeansproduct
ionrequi
resal
otofcapi
tal
andotherresour
ces.
• I
trequi
resexper
iencedpr
ojectmanager
swhoshoulddesi
gnandcont
rol
i
mplementati
onsandtheyarever
yexpensi
vet
ohire.
• Proj
ectpr
oduct
ioni
saver
ycompl
icat
edpr
ocesswhi
chi
sver
ydi
ff
icul
tto
runandcont
rol
.
JobPr
oduct
ion/
Jobbi
ng

• Iti
samet hodusedi
nprovi
sionofgoodst
hatar
edesi
gnedaccor
dingt
o
orderandcust
omers’
speci
fi
cati
ons.
• Iti
nvol
vesthepr
ovisi
onofgoodsaccor
dingt
ocust
omerrequi
rement
s
suchthatani
tem i
sonlydesi
gnedwhendemandhasr
isen.
• Goodsar
eproducedundert
her
oofoft
hewor
kshopandsi
mpl
etool
sand
equi
pmentar
eused.
• Thismethodal
lowsonei
tem t
obepr
oducedatat
imeasr
equi
redbyt
he
customer.
• Goodsar
enotproducedi
nadvancebutt
hepr
oducerwi
llwai
tunt
il
demandhasr
isen.
• Orderofworki
salsodef
inedandworkersr
equir
edhaverel
ati
veski
ll
s
suchthatt
heyareabl
etoadapttodi
ffer
entcust
omerrequi
rement
s.
• Goodsproducedthr
oughthi
smethodcanbef
urni
tur
eit
emssuchas
t
ablesandchair
s,andcl
othes.
• Iti
ssmal
lscal
einnat
ureandi
tdoesnotpr
oduceforst
ocksot
her
eisno
needf
oranorgani
zat
iont
ohaveastor
agewarehouse.
Advant
agesofJobPr
oduct
ion

• Thereisagreaterchanceofmeeti
ngthecustomerrequi
rementssi
nce
thecustomerisgivenanoppor
tunit
ytoprescri
bethequali
tyoft
he
productsi
ncethecustomerassesseseachandeverystage.
 • Iti
sfinanci
all
ycheaper
.Itdoesnotr
equi
rehumanr
esour
cest
went
y-f
our
hours.
• Itresul
tsi
nlit
tleornost
ockhol
dingcost
ssi
ncei
tisdesi
gnednott
o
produceforstock.
• I
trequi
resuseofsi
mpl
emachi
ner
yandequi
pmentt
orunandcont
rol
.
• Itr
esul
tsingaini
ngofcustomergoodwil
lgi
vent
hatgoodsar
eproduced
accor
dingtocustomerspeci
fi
cat
ionsandtheor
gani
zati
onwil
lbeablet
o
gainacorpor
ateimage.
• Thereisef
fi
cientutil
izati
onofresourcesgi
vent
hatgoodsar
eonl
y
producedwhenr equiredbythecustomers.
• I
tismostsui
tabl
ewher
econsumersonlyrequi
reasi
ngl
eit
em whi
ch
mustbedesi
gnedinar
elat
ivel
ydi
ff
erentmanner.
Di
sadvant
agesofJobPr
oduct
ion

• Ithasar i
skofrunni
ngoutofst
ocksinceitdoesnothavewarehousefor
i
tspr oductsandthi
saf
fect
sthereput
ati
onoft hef
ir
mr esul
ti
nginlossof
customer s.
• I
tisassoci
atedwi
thapassi
vemar
ket
ingst
rat
egy.
• I
trequi
resadiver
sit
yofr esour
ces,
thatis,machi
nerymustbe
mult
it
askedandlabormustbemul ti
-ski
ll
edsoast oef
fect
ivel
ydealwi
th
t
hecustomerspecif
icat
ions.
• I
tmightbedi
ff
icul
ttoimpl
ementi
ncertai
nsituati
ons,
forexampl
e,wher
e
t
hecustomer
s’speci
fi
cati
onsmaybeunreal
isti
c.
Cont
inuous/
FlowPr
oduct
ion

• I
tisacont
inuouspr
oduct
ionmet
hodt
hatpr
oducesast
andar
dpr
oduct
.
• I
tisapr
oduct
ionpr
ocesst
hati
nvol
vest
hepr
ovi
sionofl
iqui
dgoods.
• Goodsareproducedonaconti
nuousbasi
ssucht
hatt
hepr
oduct
ion
syst
em neverst
opstooper
ate.
• Theproduct
ionf
lowsmeani
ngt
hatgoodsar
epr
oducedonat
went
y-f
our
hourbasi
s.
• Fl
owpr
oduct
ional
lowsgoodst
obepr
oducedonanon-
stopbasi
s.
• Goodsproducedthr
oughthi
smet hodincl
udesteelpr
oduct
sandf
uel
,for
exampl
e,inZimbabwefl
owpr oduct
ionisusedatZISCO.
 • I
trequi
rest
heuseofheavymachi
ner
yandequi
pment
.
• Thereisneedtocontinuouslypr
oducegoodstomeetthehi
ghdemand
forproduct
sandt her
eforerawmateri
alsmustbesuf
fi
cient
lyavai
labl
eto
avoidworkstoppages.
• Flowproducti
onr equi
rest
hatt
hedemandfortheproductmustbe
conti
nuoussot hatwhenthepr
oducti
sproduced,
itissi
mult
aneousl
y
purchased.
• I
trequi
resanaccur
atemeasur
ementofdemandandr
eli
abl
esour
ceof
r
awmat eri
als.
Advant
agesofFl
owPr
oduct
ion

• I
tresul
tsi
nani
ncr
easedout
put
.
• Itachi
evesmaxi
mum util
izat
ionofr
esour
cessi
ncet
her
ear
eno
product
ionst
oppages.
• Thefi
rm doesnoti
ncurst
oragecost
sbecausei
tdoesnotpr
oducef
or
st
ock.
• Itensur
esast
rongandr
eli
abl
erel
ati
onshi
pbet
weent
hef
ir
m andt
he
suppli
er.
• Iti
stheonl
ymethodusedwhenproducingli
qui
dgoodsandot
her
concret
epr
oduct
ssuchassteelandfuel.
• I
tresul
tsi
ntheprovi
sionofhighqual
it
yproduct
sascomparedt
oot
her
methodsbecausemostoftheworkisdonebymachi
nery.
Di
sadvant
agesofFl
owPr
oduct
ion

• Itr
esult
singreat
ermaint
enanceofmachi
neswhi
chmaybever
y
expensi
veforthefi
rm.
• Itrequi
resar
eli
abl
esuppl
yofr
awmat
eri
alst
oavoi
dpr
oduct
ion
stoppage.
• Thereisneedf
oranorgani
zat
iontocont
inuousl
ytr
aini
tswor
ker
ssot
hat
theycanbeabl
etoproduceastandar
dproduct.
• Iti
ncreaseswar
ehousi
ngcost
ssi
ncet
her
eisneedt
okeepwor
kin
progr
ess.
• Iti
scapit
alintensiveandver
yexpensi
vebecausei
trequi
rest
he
i
mpl ementat
ionofheavydutymachineryandequi
pment,t
her
efor
e,
dif
fi
cultt
oest abl
ish.
 • Iti
ssuit
ableforthepr
ovi
sionofgoodst
hatar
edemandedday-
to-
day
meaningthatiti
smostappli
cabl
ewhendeali
ngwi
thgoodswit
hhigh
demand.
• I
tcannotbeusedwher
erawmat
eri
alsar
escar
cebecauset
hepr
ocess
wil
lbedi
stur
bed.
Li
nePr
oduct
ion

• Iti
stheproduct
iontechni
quei
nwhi
chacompanyspeci
ali
zesi
nthe
provi
sionofoneli
neofgoods.
• I
tinvol
vest
hepr
ovi
sionofasi
mpl
epr
oductorar
angeofpr
oduct
s.
• Machi
ner
yisar
rangedaccor
dingt
oor
derofpr
oduct
ionorf
lowofwor
k.
• Wor
ker
srequi
redar
especi
ali
zed.
• Oneitem i
sproducedbyagr
oupofwor
ker
swhocont
ri
but
eint
hei
rar
eas
ofspeci
ali
zat
ion.
• Li
neproducti
onr
equi
rest
hatapr
oductmustbepr
oducedst
art
ingf
rom
oneendtotheot
her
.
• I
nZimbabwe,l
inepr
oduct
ioni
susedbyWi
ll
owval
eMazdaMot
or
I
ndust
ri
esinpr
ovisi
onofMazdacar
s.
• Goodspr
oducedusingthi
smethodarecompl
icat
edi
temssuchas
machi
ner
y,carsandotherequi
pment
.
Advant
agesofLi
nePr
oduct
ion

• I
tresul
tsinthepr
ovi
sionofhi
ghqual
it
ypr
oduct
sbecauseofspeci
ali
sts
l
aborforce.
• Thereareeconomiesofscal
eenj
oyedasgoodsar
epr
oducedmeani
ng
thatcostdecr
easeswit
hmassproduct
ion.
• Thereishighproduct
ivi
tybecausel
inepr
oduct
ionencour
agesmass
producti
onthroughgroupwork.
• Iti
shighlysui
tablewhenproduci
ngcompl
icat
edi
temswhi
chcannotbe
producedbyasi ngl
eperson.
• Lineproduct
ionfaci
li
tat
esmaximum util
izat
ionofr
esour
cest
hati
t
reduceswastagesandotherunnecessar
ycosts.
Di
sadvant
agesofLi
nePr
oduct
ion

• I
tmayr
esul
tinhi
gherl
evelofconf
li
ctsorpoori
ndust
ri
alr
elat
ions
 becauseami
stakecommi
tt
edbyonewor
kerdemot
ivat
esanot
herwor
ker
.
• I
trequi
resspeci
ali
stl
aborf
orcewhi
chi
sver
yexpensi
vet
ohi
re.
• Itmaybeasour
ceofdemoti
vat
ionbecausewor
ker
swi
llnotbeabl
eto
assesst
hei
rper
for
mance.
• Itl
eadst
oboredom andmonot
onymeani
ngt
hatwor
ker
sar
enothi
ghl
y
committ
ed.
• Somemet
hodssuchasf
lowpr
oduct
ionr
equi
remor
ewor
ker
sforshi
ft
work.
• Reli
abil
it
yofsuppliers–somemet hodssuchasflowpr
oduct
ionmay
requi
rerawmat er
ialstobeavail
ableal
lthet
ime,
sother
eisneedt
obuil
d
agoodr el
ati
onshi
pwi t
hsuppl
iers.
• Qual
if
icat
ionsoft
hest af
f–st
affshoul
dbehi
ghl
yqual
if
iedt
ocar
ryout
t
heproducti
onprocess.
LeanPr
oduct
ion

• Iti
saJapanesetechni
quewhichwasdevel
opedf
rom r
educt
ionand
quali
tymaxi
mizati
onintheor
gani
zat
ion.
• Leanpr
oduct
ioni
nvol
vesaser
iesoft
echni
quesoraspect
ssuchas:
• Justi
nti
met
echni
que.
• St
ockcont
rol
.
• Qual
it
yci
rcl
e.
• Empl
oyees’
empower
ment
.
• Tot
alqual
i
tymanagement
.
• Teamwor
k.
• Wor
kst
udy.
Wor
kSt
udy

• Iti
sageneri
ctermforaseri
esofanal
yticalt
echni
quesusedtodeter
mine
themosteff
ici
entuseofl
abori
nrelat
iontootheri
nput
sintheproducti
on
process.
• I
twasdevel
opedf
rom t
hewor
kofFr
edr
ickTayl
or(
sci
ent
if
ic
management
).
Ai
msofWor
kSt
udy
 • Toi
mpr
oveempl
oyee’
sper
for
mance.
• Toi
ncr
easeef
fi
ciency,
product
ivi
tyandpr
ofi
tabi
li
ty.
• Toi
mpr
ovepl
anni
ngbypr
ovi
sionoft
arget
edt
imeandpr
ocedur
es.
• Topr
ovi
det
hebasi
sofi
ncent
ivespayschemessuchaspi
ecer
ate.
• Toi
mpr
ovet
hef
lowofwor
k.
• Toi
mpr
oveut
il
izat
ionofequi
pment
,mat
eri
alandspace.
Aspect
sofWor
kSt
udy

• Ther
ear
etwomai
naspect
sofwor
kst
udywhi
char
e:
• Met
hodst
udy.
• Wor
kmeasur
ement
.
Measur
eSt
udy

• Iti
sasyst
ematicprocessofrecor
dingandeval
uati
ngt
hewaysofdoi
ng
workf
orbothexist
ingandproposedonesasawayofdevel
opi
ngeasi
er
andmoreeff
ici
entmet hodst
herebyreduci
ngcost
s.
• Theimpl
icat
ioni
sthatther
eisabestmethodofperf
ormingat
askand
thi
scanonlybedi
scoveredthr
oughsci
enti
fi
capproach.
Advant
agesofMet
hodSt
udy

• I
tincr
easesor
gani
zat
ionalef
fi
ciency.
• I
tenabl
est
heor
gani
zat
iont
oincr
easet
hel
evelofpr
ofi
ts.
• I
tcanbeusedi
nreduct
ionofcost
s.
Di
sadvant
agesofMet
hodSt
udy

• I
tist
ime-
consumi
ngandl
abor
ious.
• I
tisexpensi
ve.
Wor
kMeasur
ement

• I
tist
heappli
cat
ionoft
echniquestoest
abl
isht
het
imeaqual
if
iedwor
ker
t
ooktocar
ryoutapart
icul
arjob.
• Iti
sdonet
opr ovi
deinf
ormati
onforpr
epari
ngworkschedul
es,
for
exampl
e,f
lexi
bleandcompressedworkweeks.
Aspect
sofWor
kMeasur
ement
 • St
andardtime–i ti
sthet
otalti
meinwhichaj obcanbecompl
etedat
st
andardperfor
mancebyat r
ainedi
ndi
vidualundernor
mal
ci
rcumstances.
• Standar
dperf
ormance–itistheout
putacompetentwor
kerwi
ll
natur
all
yachi
evedur
ingaver
ageworkingper
iod.
Advant
agesofWor
kSt
udy

• I
tincr
easeswor
kerper
for
mance.
• I
tmayr
esul
tinhi
ghl
evelofpr
oduct
ivi
tyandpr
ofi
tabi
li
ty.
• I
tmayi ncr
easet
hel
evelofmot
ivat
iont
husr
educi
ngt
hel
evelofl
abor
t
urnover.
• I
timpr
ovest
imi
ngbyt
hepr
ovi
sionoft
arget
edt
imepr
oduct
s.
• Wor
kst
udycanbeusedasabaseofi
ncent
ivespayscheme.
Di
sadvant
agesofWor
kSt
udy

• Ifnotpr
oper
lyused,i
tmaybeasourceofdemot
ivat
ionwhenthet
ask
becomestoosimplebecauset
her
earesomeworker
swhoar emoti
vat
ed
bychall
engi
ngtasks.
• Wor kstudyisusuall
ydonebywor
kstudyof
fi
cesandrequi
reshi
ghl
y
skil
ledpersonnelandsometi
mest
hiski
ndofworkf
orcemaynotbe
readil
yavail
able.
• Wor
kst
udyi
sat
echni
quewhi
chi
sti
me-
consumi
ngandl
abor
ious.
Pr
oduct
ionCont
rol

• Product
ionplanni
ngi
sconcer
nedwithcontr
oll
ingthemajoract
ivi
ti
es
andprocessesorwhet
hert
heproductsat
isf
iesthecust
omer.
• I
tisamajortool
fort
hemanagerbecausei
tenabl
est
heor
gani
zat
iont
o
r
educecosts.
• Themanager
’sai
m ofproducti
oncontr
oli
stof
indt
hemet
hodand
st
rat
egi
esoflower
ingdownt hecost
.
• Pr
oduct
ionmanager
sneedt
ounder
standt
hebehavi
oroft
hecost
.
• Costcanbedi
videdi
ntot
hreegr
oupsandt
hesear
e:
a.Fi
xedCost
s

• Thesecanal
sobecal
ledi
ndi
rectcost
s.
 • Thesearecost
swhi
chdonotchangeorwhi
chdonotvar
ywi
tht
hel
evel
ofoutput
.
• I
tcanbei
ll
ust
rat
edasf
oll
ows:
Fi
xed-
CostChar
t

b.Var
iabl
eCost
s

• Thesecanbecal
leddi
rectcost
s.
• Theyvar
ywi
tht
hel
evelofout
put
.
• I
tcanbei
ll
ust
rat
edasf
oll
ows.
Var
iabl
e-CostChar
t

c.SemiVar
iabl
eCost
s

• Thesear
ecost
swi
thbot
hfeat
uresoff
ixedandvar
iabl
ecost
s.
 • I
tcanbei
ll
ust
rat
edasf
oll
ows:
Semi
-Var
iabl
eCost
sChar
t

I
mpor
tanceofCostI
nfor
mat
ion

• Tosel
ectanappr
opr
iat
eshar
ingst
rat
egy.
• Todet
ermi
net
hest
abi
l
ityoft
heor
gani
zat
ion.
• Forbudget
ingpur
poses.Thi
srequi
resf
orecast
ingandpl
anni
ngf
ort
he
fut
ure.
• Forcont
rol
li
ngpur
poses.
• Forchoosi
ngt
hel
eastcost
ingt
echni
ques.
Cost
ingTechni
ques

• Iti
sthepr ocessofascer t
ainingthevalueofexpendi
tur
eincurr
edin
producingauni tofproducti
onout put
.Itisamethodofdetermini
nghow
mucht hef i
rm hasincurr
edi nproducingeachunitofout
put.Therear
e3
costi
ngt echni
queswhi char e:
• Absor
pti
oncost
ing.
• Mar
ginalcost
ing.
• St
andar
dcost
ing.
Absor
pti
onCost
ing

• Thi
scanal
sober
efer
redt
oasat
otal
.
• I
tconsi
der
sorabsor
bsal
lthecost
ingi
ncur
redbyt
hef
ir
minpr
oduct
ion.
 • Itaggr
egatesbot
hfi
xedandvar
iabl
escost
sinascer
tai
ningt
heuni
tcost
ofproduct
ion.
Advant
agesofAbsor
pti
onCost
ing

• Itabsorbsallt
hecostsincur
redbythef
ir
m andt
hisenabl
est
he
organizat
iontoreduceunderpr
ici
ng.
• Itdoesnotendeavortocat
egor
iesordi
videcosti
ntof
ixedandvar
iabl
e
costhencelessexpensi
ve.
• I
tcanbeusedf
ori
ncomepur
posesandi
npubl
ishedf
inanci
alr
epor
ts.
Di
sadvant
agesofAbsor
pti
onCost
ing

• Itgivesthef
ir
ml essflexibi
li
tyinprici
ngoncetheunitofproduct
sis
establi
shedusingabsor pti
oncosting.Thefi
rm shoul
dalwaysselli
ts
productsatapr i
cethatisslight
lyabovethetot
alunitcost
.
• Fluct
uati
ondemand–undercir
cumstanceswheredemandfl
uct
uat
es
accordi
ngtopeakandof
fpeakper
iods,t
hefi
rm needst
oavoi
dsuch
fl
uctuat
ions.
Mar
ginalCost
ing

• I
tisacost
ingtechni
quethatonlyconsi
der
sthevar
iabl
ecomponent
sof
t
hecosts,
forexample,
dir
ectlabor.
• I
tcanal
sobecal
led‘
cont
ri
but
ioncost
ing’
byt
hevi
rt
ueofi
tsemphasi
sof
t
hecont
ri
but
ion.
Advant
agesofMar
ginalCost
ing

• Iti
susedt odeci
detheprici
ngpol
icyandthisenablesthebusi
nesst
o
establ
ishacompetit
iveadvant
ageoverotherbusinessesandt
o
safeguardit
smarketposi
tionf
rom i
tscompetit
ors.
• Itenhancest
heaccur
acyofdeci
sionmaki
ngresult
ingi
nrat
ional
decisi
onssuchaswhethert
oconti
nueordi
sconti
nueinpr
oducti
on.
• Itislesscomplexbecauseitconsi
der
scost
sincur
redi
npr
oduct
ionand
disregardssubj
ecti
vecosts.
Di
sadvant
agesofMar
ginalCost
ing

• Ifi
tisext
endedtomargi
nalcostpr
ici
ng,i
tmayresul
tint
hecoveri
ngof
coststhr
oughunder
pri
cingsi
nceitconsi
der
svari
abl
ecostsr
atherthan
tot
alcosts.
 • Mar
ginalcost
ingdr
awsadi
sti
nct
ionbet
weenvar
iabl
eandf
ixedcost
s.
• Thi
smaybecomeadiff
icul
tpr
ocessduetot
hef
actt
hatsomecost
shave
bot
hel
ementsoff
ixedandvar
iabl
ecost
s.
Ci
rcumst
anceswher
eMar
ginalCost
ingmaybeAppl
ied

• Makeorbuydecisi
on–t hefi
rm deci
deswhet
hert
opr
oducef
ori
tsel
for
t
obuyfrom ot
herproducer
s.
• Accept
anceofaSpecialOrder–inthenor
malcour
seofthebusiness,
cust
omersmayapproachthefir
m andmakeanorderatapri
cethatis
bel
owthenormalpr
ice.
• Othercust
omers–abusi
nessshoul
dconsi
derapossi
bler
esponsef
rom
exi
sti
ngcustomer
s.
• Scar
cit
yofI
nput
s/Fact
orsofPr
oduct
ion
• Sti
ffcompetit
ion–i
nacompet it
iveenvi
ronmentwher
esuchtact
icsas
cutt
hroatpr
ici
ngcanbeappli
ed,thebusi
nesscanbeforcedt
omar ki
ts
pri
cebelowthemargi
nalcostofproduct
ion.
St
andar
dCost
ing

• I
tisacosti
ngtechniquet
hati
nvolvesset
ti
ngupofstandardsofwhi
ch
t
heactualcost
swillbecal
cul
atedusingt
hevar
ianceanalysi
s.
Advant
agesofSt
andar
dCost
ing

• I
tincr
easest
hel
evelofmot
ivat
ionsi
ncecl
eart
arget
sar
eset
.
• I
tisf
lexi
bleandi
tser
vesmanagementi
npl
anni
ngandcont
rol
.
• I
tpr
ovi
desagui
det
opr
ici
ngdeci
sion.
Di
sadvant
agesofSt
andar
dCost
ing

• Standar
dsmustbeexami
nedandmodif
iedconti
nuousl
yascondi
ti
ons
changeandt
hatcanbecost
lyt
otheor
ganizat
ion.
• Thi
sisdif
fi
cultt
oestabl
ishandmai
ntai
nthemi
nimum st
andar
dsf
ort
he
componentsofapr
oject
.
• I
nit
iali
nvest
ment
sar
erequi
redt
oest
abl
ishast
andar
dcost
.
• Syst
em i
sbot
hti
me-
consumi
ngandexpensi
ve.
Br
eak-
EvenAnal
ysi
s

• I
tisapr
oduct
iont
echni
queusedt
odet
ermi
net
hemi
nimum pr
oduct
ion
 outputrai
sedinor
derforthef
ir
mtogener
ateadequat
eamountof
revenuetocovert
otalcost
s.
• Theconceptai
mstoobtai
ntheopti
mum out
putt
hatwi
llenabl
ethef
ir
m
tomakeneit
herpr
ofi
tsnorl
osses.
• Thebr eak-
evenpoi
nti
sthepoi
ntatwhi
cht
otalcost
sar
eequalt
otot
al
revenue.
• Iti
sobtainedatapoi
ntwher
etot
alcost
scur
veandt
otalr
evenuecur
ve
crosseachother
.
Br
eak-
eveni
sbasedont
hef
oll
owi
ngassumpt
ions:

• Pr
icei
sconst
antperout
putl
evel
.
• Fi
xedcost
sar
econst
antf
oral
lout
put
.
• Cost
scanbeeasi
lycl
assi
fi
edi
ntof
ixedandvar
iabl
ecost
s.
• Tot
alr
evenueandt
otalcost
scur
vest
aket
hel
inearf
orm.
Mar
ginalofSaf
ety

• I
tisadi
stancebet
weent
hebr
eakevenout
putandf
ullcapaci
ty.
• I
tmeasur
est
hesaf
etyort
her
iskoft
hebusi
nessi
nit
soper
ati
ons.
• Thecl
oserthebusinesstothebreak-
evenpoint
,thegr
eat
ert
heri
sksi
nce
anysl
ightr
educti
onmi ghtputt
hebusinessintothel
ossr
egi
on.
Br
eak-
EvenAnal
ysi
s
Where:
Cont
ribut
ionperUni
t=Sel
li
ngPr
ice–Var
iabl
eCost
.

Advant
agesoft
heBr
eak-
EvenAnal
ysi
s

• Itenabl
est
hebusinesst
oobtaint
helevelofout
putwhi
chi
t’
sbr
eaki
ngso
astoobtai
nthedesir
edl
evelofpr
ofi
ts.
• Itenabl
esmanagerst
obeconsci
ousaboutcostssothattheycanfi
nd
strat
egi
esofmini
mizi
ngcost
ssoastodeterminethelevelofpr
ofi
t.
• Themar gi
nofsafet
yal
sohelpsmanager stomeasur
ethedegr
eesof
ri
chnessofthef
ir
m’soutputatf
ullcapaci
ty.
Di
sadvant
agesoft
heBr
eak-
EvenAnal
ysi
s

• Theconceptassumest hatcostscanbeeasi l
ydividedi
ntotwo,
thatis,
fixedandvar
iablecost
sbutinr eal
it
y,i
tisdiff
icul
tbecausecost
scan
takesomechar act
eri
sti
csoffixedandvariablecostsatt
hesamet i
me.
• Thebreak-
evenanalysi
sassumesaconst
antpr
icef
unct
ionwhi
chi
snot
real
ist
ici
nthi
sworld.
• Theconceptassumest hattot
alcostsandtotalrevenuefuncti
onsare
l
inearwhichenablest
hef i
rmt ogetonlyonebreak-evenpointbuti
n
real
it
ytot
alcostandrevenuef unct
ionsmighttakeacur vedli
near
funct
ionandbringaboutmor ebreak-
evenpoints.
Di
agr
am

Ot
herPr
oduct
ionDeci
sions

1.Lar
geScal
eOper
ati
on

• Thelargert
hefi
rm,
themoreli
kel
ythati
tcanaf
for
dspeci
ali
zed
depart
mentsandorper
sonnel
.
• Speci
ali
zeddepartment
smi ghtincl
uder
esear
chanddevel
opment
,
market
ing,
financeandothers.
Advant
agesofLar
geScal
eOper
ati
on

• I
thel
pst
heor
gani
zat
iont
oobt
aineconomi
esofscal
etoi
ncr
easepr
ofi
ts.
• Theorgani
zati
onwi
llbeabl
etoaccesscreditf
inancefrom f
inanci
al
i
nsti
tut
ionsduetot
heavail
abi
li
tyofcol
lat
eralsecuri
ty.
• Qual
it
ywi
llbei
ncr
easedbecauseoft
heabi
li
tyt
oat
tr
actski
ll
edper
sonnel
.
Di
sadvant
agesofLar
geScal
eOper
ati
on

• I
tmightl
eadtoreducedcompet
it
ionbecausesomef
ir
msmayabuseand
f
orm monopol
ies.
• Gr
owi
ngl
argemayr
esul
tinsl
owdeci
sionmaki
ng.
• I
tisaccusedofbei
ngper
sonalbecausether
eisnocont
actbet
ween
managersandworker
swhichmightleadtoempl
oyeesdemoti
vat
ion.
• I
tmayr
esul
tinover
tradi
ng.
Appl
icat
ionTechnol
ogy/
Aut
omat
ion

• I
tiswherebyallpr
oducti
on/
oper
ati
onsyst
emsuseapr
oduct
ionpr
ocess
whichi
nvolvestheuseofmachi
ner
y.
• Technol
ogyi
susedt
oconver
tinput
sandout
put
s.
Advant
agesofAut
omat
ion

• I
tcr
eat
esbet
terwor
kingcondi
ti
ons.
• Ther
eisbet
termanager
-empl
oyeer
ati
owhi
chmakessuper
visi
oneasi
er.
• I
timpr
ovest
hequal
it
yoft
hepr
oduct
.
• I
tincr
easest
hel
evelofpr
oduct
ivi
ty.
• I
treducest
heuni
tcost
sofpr
oduct
ion.
• I
treducesl
aborcost
s.
Di
sadvant
agesofAut
omat
ion

• I
tmayr
esul
tinj
obl
ossest
ounski
ll
edempl
oyees.
• I
tcausesdeski
ll
ing.
• I
nsomecases,itmightleadtoredepl
oymentandr
etr
aini
ngofwor
ker
s
whi
chmayaffecttheorganizat
ionnegat
ivel
y.
• I
tmayresul
tini
ncr
easedfi
xedcost
ssoastosourcesuchmachi
nes
whi
chmightbever
yexpensi
vefort
hebusi
ness.
• Machi
nesmaycausei
njur
iest
othewor
kfor
ce.
Locat
ionoft
hePl
an

• Pl
antl
ocati
ondecisi
onsaf
fectover
allcost
s,empl
oyeemor
aleandot
her
el
ementsofthef
ir
m.
 • .
• Locat
ionoft
heplantdependsont
het
ypeofi
ndust
ryort
henat
ureof
manufact
uri
ng.
• Someoft
hef
act
orsconsi
der
edi
nabusi
nesswhenr
elocat
ingar
e:
• I
nfr
ast
ruct
ure.
• Per
manentsuppl
yofr
awmat
eri
als.
• Poweravai
labi
li
ty.
• Levelofcompet
it
ion.
• Mar
ketaccessi
bil
it
y.
Qual
it
yCont
rol

• Quali
tyi
sthedegr
eeofappr
opr
iat
enessofapr
oductandi
tsabi
li
tyt
o
sat
isf
yacertai
nneed.
• Qual
it
ycontroli
satechni
queai
mingatchecki
ngi
fpr
oduct
sar
ebei
ng
manufact
uredtoconf
ormtopurpose.
Qual
it
yPhi
losophy

• Qual
it
yissecondar
ytopr
ofi
ts,
thati
s,t
her
eisnor
elat
ionshi
pbet
ween
qual
it
yandprofi
ts.
• Hi
gherqual
it
ymeanshi
ghercost
s.
• Themaj
orai
m ofqual
it
ycont
roli
stomi
nimi
zequal
it
ydef
ect
s.
• Qual
it
ycont
roli
sapr
obl
em ofqual
it
ycont
rol
ler
sint
heor
gani
zat
ion.
• Mostqual
it
ypr
obl
emsar
ear
esul
tofpoorwor
kmanshi
p.
• Qual
it
ycont
rolpr
obl
emsmustbei
dent
if
iedandr
educed.
NewPhi
losophy

• Qual
it
yist
hebestwayt
oensur
epr
ofi
ts.
• Hi
gherqual
it
ymeansl
owcost
s.
• Zer
oqual
it
ydef
ect
s.
• Ever
yonei
saqual
it
ycont
rol
ler(
tot
alqual
it
ymanagement
).
• Mostqual
it
ypr
obl
emsar
ear
esul
tofpoormanagement
.
Qual
it
yCont
rolTechni
ques
1.Qual
it
yCi
rcl
es

• Iti
sagr oupofwor
kersfrom dif
ferentdepart
mentswhomeetat
prescr
ibedti
mesorint
erval
si nordertodiscussi
ssuesr
elat
edt
oqual
it
y.
• I
tismadeupofatl
eastsi
xwor
ker
sandabove.
• Wor
ker
sint
hegr
ouppar
ti
cipat
eindi
scussi
onsandcont
ri
but
e.
• Measur
eswhi
chcanbeusedt
oimpr
ovequal
it
y.
• Indi
vidual
sconsti
tut
ingquali
tyci
rcl
escontr
ibut
eini
dent
if
yingpr
obl
ems
ofpoorquali
tyandsolut
ionstotheprobl
ems.
Advant
agesofQual
it
yCi
rcl
es

• Qual
it
ycir
clesi
ncreasethelevelofempl
oyeemor
aleandmot
ivat
ion
si
ncether
eisworkerspart
icipat
ion.
• I
tleadst
othei
mpr
ovementi
nqual
it
yofpr
oduct
s.
• Theycont
ri
but
ei nthemini
mizati
onofcost
sincur
redi
npr
oduct
ionas
worker
sfi
ndsoluti
onstotheprobl
ems.
• Qual
it
yci
rcl
esf
ost
ert
heexi
stenceofgoodr
elat
ionsamongempl
oyees.
• Qual
it
ycircl
escreat
eeff
ecti
vecommuni
cat
ioni
ntheor
gani
zat
ionas
di
ff
erentdepar
tmentsar
einvol
ved.
Di
sadvant
agesofQual
it
yCi
rcl
es

• Theymayconsumedi
scussi
ont
imemeani
ngi
tist
ime-
consumi
ng.
• Qual
it
yci
rcl
esmaybeexpensi
vetorunast
heymayi
ncr
easecost
ssi
nce
t
heyneedtobemot
ivat
edfi
nanci
all
y.
• Qualit
ycircl
esrequi
resomeresour
ces,
meani
ngf
orquali
tycir
clest
o
conti
nuet oexi
stmanagersmustsuppl
ygr
oupmemberswithnecessar
y
resources.
• Qual
it
ycirclesmaybeasour
ceofdemot
ivat
iont
owor
ker
swhosei
deas
ar
eneglected.
Qual
it
yAssur
ance

• Iti
saqualit
ycontrolt
echni
quewher
ebyqual
it
yisguar
ant
eedbef
ore
product
ionofgoods.
• Qual
it
yofgoodsisimprovedbyscreeni
ngr
awmat
eri
als,
machi
ner
yand
ot
hernecessar
yproduct
ioninput
s.
 • Onlyinputsthatmeettheexpect
edstandar
dsi
nter
msofqual
it
yar
e
channeledintothepr
oducti
onsystem.
• Defect
ivei
nput
sar
eel
imi
nat
edt
omakesur
ehi
ghqual
it
yrawmat
eri
als
ar
eused.
• Qual
it
yassuranceenabl
est
heor
gani
zat
iont
oimpr
ovequal
it
ythr
ough
pr
oducti
veapproach.
Advant
agesofQual
it
yAssur
ance

• Hi
ghqualit
yproductsar
eproducedmeani
ngt hatscr
eeni
ngofr
aw
mater
ial
sassuresthepr
ovi
sionofhi
ghquali
ty.
• Itensuresthatr
esour
cesarewisel
yut
il
izedt
her
efor
eef
fi
cientand
effect
iveresour
cesal
locat
ion.
• Unnecessar
ycost
sar
ekeptmi
nimum l
evel
s.
• Theideai
sthati
nspect
ingi
nput
sensur
est
hatwor
kinpr
ogr
essi
sof
expect
edqual
it
y.
Di
sadvant
agesofQual
it
yAssur
ance

• Qual
it
yassur
ancer
equi
resot
hercompl
ement
aryt
echni
ques.
• I
tcannotbeusedoni
tsownbecausei
tfocusesoni
nput
sal
one.
• I
tisat
ime-
consumi
ngpr
ocess.
• Quali
tyassurancer
equir
esachangeofor
gani
zat
ionalcul
tur
e.I
not
her
wordsitf
ostersacult
urequal
it
y.
• Themet hodi
sdif
fi
cul
ttoappl
yinsi
tuat
ionswhereacompanyi
s
operat
ingonalar
gescal
ebasiswherei
tproduceshi
ghvol
umesof
output
.
• I
tincr
easesworkl
oadonsubor
dinat
esmeaningt
hatbesi
desperf
orming
t
heirt
asksworker
salsoneedt
oacceptt
hetaskofi
nspect
ingqual
it
y.
Tot
alQual
it
yManagement(
TQM)

• I
tbel
i
evest
hatqual
it
yisever
yone’
sresponsi
bil
it
yinanor
gani
zat
ion.
• I
tisat
echni
quewi
tht
hepur
poseofensur
inghi
ghqual
it
yout
put
.
• Tot
alqual
it
ymanagementsaysqual
it
yst
art
swi
tht
heconsumer
s.
• Totalqual
itymanagementassur
est
hatqual
it
ycanbei
mpr
ovedona
gradualbasis.
 • Themai nideai
sthateveryonei
ntheorgani
zat
ioni
stopart
ici
pat
einthe
i
mpr ovementofthequali
tyofgoodsf
rom managementt
othelowlevel
workers.
Advant
agesofTot
alQual
it
yManagement

• Itresul
tsi
ntheproduct
ionofhi
ghqual
it
youtputmeani
nghighquali
ty
productsar
eproducedleadi
ngtoi
mprovedcust
omersati
sfact
ion.
• I
tisgoodi
nbui
ldi
ngt
hecor
por
atei
mageoft
heor
gani
zat
ion.
• I
timpr
ovescommunicati
onflowwit
hintheor
gani
zat
ion.Thi
sisbecause
t
herei
sinvol
vementofal
ldepart
ments.
• Tot
alqual
it
ymanagementcanal
sobeusedt
oimpr
oveempl
oyees’
moral
eandmoti
vati
on.
• I
tresul
tsi
nreducedcost
sthr
oughencour
agi
ngef
fi
cientandef
fect
ive
r
esourceut
il
izat
ion.
Di
sadvant
agesofTot
alQual
it
yManagement

• Thechangeinter
msofquali
tytakesalongper
iodoft
imemeaningthat
thet
otalqual
it
ymanagementtakesalongti
met oi
mprovequal
it
y.
• Tot
alquali
tymanagementrequir
estotalchangei
nor
gani
zat
ionalcul
tur
e
whi
chmi ghtr
esul
tinresi
stancetochange.
• Totalqual
it
ymanagementisdiff
icul
ttoi
mpl
ementi
nsi
tuat
ionswher
e
therei
spoorindust
ri
alr
elat
ions.
• Tot
alqual
it
ymanagementi
sver
ymuchl
abor
iousandt
ime-
consumi
ng.
• Totalqual
it
ymanagementi
smor
eofanor
gani
zat
ionpol
icyr
athert
hana
techni
quetoqual
i
tycont
rol
.
Zer
oDef
ect
s

• I
tisaquali
tycontr
oll
ingt
echni
quet
hatsi
mpl
yfocusesont
heout
put
r
elat
ivet
oqualit
y.
• Zer
odef
ect
smeanszer
otol
erancet
oanyf
aul
tyordef
ect
ivepr
oduct
.
• Iti
nvolvesinspect
ingt
hei
nput
sinor
dert
oel
imi
nat
eanyt
hingbel
ow
standard.
• Zerodef
ect
sappr
oachenablesmanager
stosetanexpect
edout
putl
evel
thatwor
ker
smustachi
eve.
• I
fwor
ker
sachi
evet
heexpect
edout
put
,theycanbegi
vensomer
ewar
ds
 andt
hismot
ivat
eswor
ker
s.
Advant
agesofZer
oDef
ect
s

• I
tleadst
oimpr
ovementofqual
it
yofgoodsr
ecei
vedbyt
hecust
omer
.
• I
tisamot
ivat
ionalt
oolbecausef
inanci
alr
ewar
dsar
epai
dtot
hewor
ker
s.
• Zerodef
ect
sapproachi
ncreasesworker
scommitmentmeaningthat
probl
emsassoci
atedwi
thabsenteei
sm andl
abort
urnoverar
ereduced.
• Itl
eadstoincreasedcust
omersat
isf
act
ionsi
ncehi
ghqual
it
ypr
oduct
s
arealwaysdistr
ibut
ed.
Di
sadvant
agesofZer
oDef
ect
s

• I
tisver
yexpensivef
orthefi
rm meani
ngt hatt
hepr
ovi
sionoff
inanci
al
r
ewardscanleadtoexcesscashoutf
lows.
• Itisverydi
ff
icul
ttoi
nspecteachandever
yout
putmeani
ngt
hatt
her
ear
e
alsohighchancesofdef
ecti
veproduct
s.
• I
tisunr
eali
sti
ctoi
magi
net
hepr
oduct
ionof100%out
putwi
thoutany
f
ault
yproduct
s.
• Zer
odefectsappr
oachusual
lywor
kswher
ether
ear
est
rat
egi
est
omake
sur
ethatqual
ityi
snotcompromi
sed.
• Ital
sor equi
rescompl
imentar
ytechni
questomonitori
nput
sandwor
kin
progresstomakesurethatqual
it
yisguar
anteed.
Qual
it
ySt
andar
ds

• I
tinvolvest
heuseofqual
it
yst
andar
dasamet
hodol
ogyofi
mpr
ovi
ngof
t
hepr oduct
.
• Theorgani
zat
ionadopt
stheexpect
edqual
it
ystandar
dsandwor
k
towar
dsmeetingthest
andar
dsforit
spr
oducts.
• Thismethodisadopt
edbyorganizati
onsproduci
ngf oodi
temsandot
her
product
sthataf
fectt
hehealt
hoft heconsumers,f
orexample,
in
Zi
mbabwe, wehavetheStandar
dsAssoci at
ionofZimbabwe(SAZ)
.
• Ift
heproduct
sareappr
ovedbyt
heSAZ,t
hecompanyget
sacer
ti
fi
cat
e
andit
sproductsar
esai
dtobeofhi
ghqual
it
y.
• Thesequal
it
ystandar
dsareusual
lymoni
tor
edgl
obal
lybyI
nter
nat
ional
Standar
dsAssoci
ati
on(I
SO9000).
Advant
agesofQual
it
ySt
andar
ds
 • I
thel
pst
heor
gani
zat
iont
opr
oducepr
oduct
sofhi
gherqual
it
yst
andar
ds.
• Qual
it
yst
andar
dsar
eimpor
tanti
nboost
ingcust
omerl
oyal
ty.
• Itenabl
est
heorgani
zat
iontoenj
oyexter
nalbenef
it
s,f
orexampl
e,i
fthe
companyachi
evesexpect
edquali
tyst
andards.
Di
sadvant
agesofQual
it
ySt
andar
ds

• Qual
it
ystandar
dsincreasecost
stotheorgani
zat
ionmeani ngthatf
or
qual
it
ytobeimproved,ther
eisneedtocul
ti
vat
eal otofcapit
al.
• Somequali
tyst
andar
dsar
etoounreal
ist
icandmaybediff
icul
tto
achi
eveandthi
smaybeasourceofdemotivat
iont
otheworkf
orce.
Pr
oduct
ionEngi
neer
ing

• Iti
saqual i
tymanagementt
echni
quet
hati
nvol
vesi
mpl
ement
ati
onof
engineer
ingst
rat
egy.
• Iti
nvolvest
heemploymentofspeci
ali
zedengi
neerswhoar
ewell
-t
rai
ned,
experi
encedandhi
ghlyeducat
edinwor ki
ngwi
ththemachi
ner
yand
equipment.
• Speci
ali
stengi
neer
sar
eresponsi
blef
ort
hei
nst
all
ati
onoft
heequi
pment
.
• Theideaistohel
pintheprovi
sionofhigherquali
typroduct
sbyensur
ing
thatmachiner
yandequipmentareeff
ectivel
yfuncti
oning.
Advant
agesofPr
oduct
ionEngi
neer
ing

• I
tleadst
othepr
ovi
sionofhi
ghqual
it
ypr
oduct
s.
• Product
ionengi
neer
ingensur
est
hatef
fect
iveandef
fi
cientmachi
nesar
e
used.
• Itf
aci
li
tat
eswiseuseofr
esour
ces,
forexampl
e,pr
operi
nst
all
ati
onand
useofequipmenthel
pst
omini
mizeresour
cewast
ages.
• I
tmi
nimi
zesr
ewar
dingcost
s.
Di
sadvant
agesofPr
oduct
ionEngi
neer
ing

• Engi
neersarever
yexpensi
vet
ohi
ret
her
efor
ethef
ir
m exper
ienceshi
gh
l
aborcosts.
• Iti
sverydif
fi
cultandexpensi
vet
oest
abl
ishbecausei
trequi
resal
otof
capit
alandotherresour
ces.
• I
trequi
resot
hercompl
iment
aryt
echni
quessot
hathi
ghqual
it
ypr
oduct
s
 ar
epr
oduced.
• Themet hodi
snoteasi
lyavai
labl
etosmal
lor
gani
zat
ionsbecauseofl
ack
ofcapi
tal.
Benchmar
king

• Iti
saquali
tycontr
olmet
hodthati
nvolvesimprovi
ngquali
tybymaki
ng
useofqual
it
ystandar
dsest
abli
shedandt heorgani
zat
ionworkst
owards
achievi
ngt
hestandar
dsusi
ngdiff
erentstr
ategi
es.
• I
tmeanst
heest
abl
ishedst
andar
dsactasabenchmar
k.
• I
tinvol
vesacompar
isonoft
heper
for
manceoft
heor
gani
zat
ion.
Advant
agesofBenchmar
king

• I
tincr
easest
hemor
aleandmot
ivat
ionoft
hesubor
dinat
es.
• Wor
ker
sincr
easet
hei
ref
for
tsi
nor
dert
omeetsetst
andar
ds.
• Itr
educesthegapbet
weenper
for
manceandst andards,
meani
ngt
hat
benchmarkshel
pinimpr
ovi
ngtheover
allper
formance.
• I
thel
psi
nimpr
ovi
ngt
hei
mageoft
heor
gani
zat
ion.
Di
sadvant
agesofBenchmar
king

• Itmightbediff
icul
ttoappl
ypr act
ical
lysi
ncei
tinvol
vesr
esear
chi
nto
otherorgani
zati
ons’st
rat
egies.
• Theproblem i
sthatcompet
it
orsmaynotdescr
ibet
hei
rcompet
it
ive
st
rat
egies.
• Benchmar
kingmayr equi
reachangei
ncul
tur
eoft
heor
gani
zat
ionand
thi
smayber esi
sted.
• Itmightbeasour
ceofdemot
ivat
ioni
fsomewor
ker
sfai
ltoachi
evet
he
setstandar
ds.
• I
trequi
rest
hecul
ti
vat
ionofal
otoft
imei
nor
dert
oimpr
ovequal
it
y.
• Benchmarki
ngcannotbeusedi
nisol
ati
onbutmustbeusedwi
thot
her
methods.
Cont
inuousI
mpr
ovement(
Kai
zen)

• Iti
sanappr oacht
owastemini
mizati
onthatemphasi
zesonmaki
ng
gradualchangesi
nthemini
mizat
ionofwastagesandqual
it
y
maximizati
on.
 • Thetechni
queinvol
vesever
yonei
ntheor
gani
zat
iont
opar
ti
cipat
ein
reduci
ngwastages.
• Conti
nuousi
mpr
ovementr
equi
resmanager
swhoar
esuppor
ti
vet
o
worker
s.
Advant
agesofKai
zenAppr
oach

• Iti
ncreasesworkermor
aleandmot
ivat
ionduet
othepr
esenceof
part
ici
pation.
• I
timpr
ovest
hequal
it
yoft
hepr
oduct
s.
• I
tenabl
est
heor
gani
zat
iont
omaxi
mizepr
ofi
tsandsal
es.
• Ther
eismi
nimum r
esour
cewast
age.
• Theor
gani
zat
ioncanbecomehi
ghl
ycompet
it
ive.
Di
sadvant
agesofKai
zenAppr
oach

• I
tist
ime-
consumi
ngsi
ncei
tinvol
vesever
yone’
spar
ti
cipat
ion.
• I
tisexpensi
vesi
ncei
trequi
resst
rongf
inanci
alsuppor
t.
• I
tmayr
esul
tinhi
ghl
evel
sofconf
li
cts.
• I
tisl
abor
ious.
• I
tcannotbeusedoni
tsownbutneedst
obecombi
nedwi
thot
her
t
echni
ques.

PRODUCTI
VITY

Product
ivi
tyr
efer
stothetotaloutputdi
videdbythetot
alinput
sused.I
tis
ther
efor
eoutputpereachunitofresour
ceused.Producti
vit
ymeasuresthe
rel
ati
onbetweentheoutputproducedandt hei
nputsused.
Ef
fi
ciency

• Ref
erstothemeasureofhowinput
shavebeenut
il
izedr
elat
ivet
ohow
t
hoseinputshavebeenpl
annedtobeused.
• I
tmeasur
est
hevar
iancebet
weent
heact
ual
inputusedandt
hepl
anned
i
nput
.
• Ther
efor
e:

Ef
fect
iveness

• I
tist
heabi
li
tyt
owhi
cht
heor
gani
zat
ionhasachi
evedi
tsobj
ect
ives.
• Iti
sameasureofhowact
ual
out
puti
sdi
ff
erentf
rom t
hepl
annedor
expect
edout
put.
• Ther
efor
e:

St
ockCont
rol
/I
nvent
oryManagement

• Stockr
efer
stothei
temsofrawmat er
ials,
wor
kinpr
ogr
essandf
ini
shed
goodsbythecompanyatapart
icul
artime.
• St
ocki
scl
assi
fi
edi
n3f
orms:
• Rawmat
eri
als.
• Wor
kinpr
ogr
ess.
• Fi
nishedgoods.
St
ockCont
rol

• Itr
efer
stoanint
egr
atedapproachconsti
tut
inganumberoftechni
ques
whichareusedt
omonitorandcontr
olthemovementofstockinandout
ofthebusi
ness.
• St
ockcont
roli
nvol
vesaser
iesoft
echni
quessuchas:
• Justi
nti
me.
• Twol
oinmet
hod.
• St
ockcont
rolchar
t.
• Economi
cor
derquant
it
y.
 • Par
etor
ule.
• Mat
eri
alr
equi
rementpl
anni
ng.
JustI
nTi
me

• Iti
nvolvesor
der
ingr
awmat
eri
alsexact
lywhent
heyar
erequi
redf
or
producti
on.
• Rawmat er
ial
sarescheduledtoar
ri
vej
usti
nti
mewhent
heyar
erequi
red
forpr
oduct
ioninsmall
erloads.
• Thismeansthatwast
agesf
rom obsol
escenceanddamagesar
e
minimi
zed.
• Wast
agesfrom over
product
ionar
eal
sor
educedbecausegoods
pr
oducedonlymatchthedemand.
Ci
rcumst
ancesunderwhi
chJustI
nTi
meMet
hodmaybeNecessar
y

• JustI
nTi memaybeappr opriat
einor
ganizati
onswithhighlymotivat
ed
workfor
ce,str
ongfi
nancialsuppor
tandeffect
ivecommuni cat
ion,
teamwork,workeri
nvol
vementandparti
cipati
on,rel
iabl
easwel las
support
ive.
Advant
agesofJustI
nTi
me

• Ithel
psinfaci
li
tati
ngbestut
il
izat
ionofr
esourcesmeani
ngt
hati
t
contr
ibut
estomi ni
mizat
ionofresour
cewastages.
• Iti
salsoamotivat
ionalt
echni
queinthesensethati
tencour
ageswor
ker
part
ici
pat
ionandcontri
buti
onindeci
sionmaking.
• I
tcont
ri
but
est
othepr
ovi
sionofhi
ghqual
it
ypr
oduct
s.
• Ithel
psinreduci
ngre-
worki
ngcost
sandot
herunnecessar
ycost
s
associ
atedwithbul
kybuyi
ng.
• I
tisbenef
ici
ali
nthesenset
hatr
awmat
eri
alsar
eor
der
edi
nsmal
ler
l
oadshenceeasytomanage.
• War
ehousi
ngcost
sar
emi
nimi
zedsi
ncei
tisazer
odef
ecti
nvent
ory
met
hod.
Di
sadvant
agesofJustI
nTi
me

• Asit
uat
ionofmor
efr
equentpur
chasesasgoodsar
eor
der
edi
nsmal
ler
l
oads.
• JustI
nTi
mer
equi
resawel
l-
mot
ivat
edwor
kfor
cewhi
chi
str
ainedand
 exper
iencedsucht
hatt
hesyst
em cont
inueswi
thoutdi
srupt
ions.
• Economiesofbulkybuyi
ngar
elostbecausegoodsar
eor
der
edi
n
small
estloads.
• Thesyst
em doesnotwor
kwel
lift
her
eisnor
eli
abl
esuppl
ier
.
• I
tmightalsocont
ri
butetowast
ageofresourcesandtimebecauset
ime
wil
lbespentonorder
ingandtr
anspor
ti
ngr awmat er
ial
s.
• I
tisdi
ff
icul
ttomeetunexpect
edr
isei
ndemand.
TheMai
ntenanceofSt
ock

Fi
shboneDi
agr
am

• Iti
sadiagram thathelpstomakeapi
ctor
ialil
lustr
ati
onont he
causes/pr
oblemsr esult
ingf
rom t
hemachiner
y, mater
ialandmet
hodsof
product
ion.
• I
thelpsmanager
stodi
agnoset
heproblemsr esul
ti
ngf
rom t
hemet
hod,
materi
al,
money,
manpowerandmachinery.
Exampl
eofaFi
shboneDi
agr
am

Advant
agesofFi
shboneDi
agr
am

• I
tleadstoanincreaseofworkermor
aleandmot
ivat
iongivent
hat
worker
spart
icipateandareconsi
der
edasimpor
tantthi
smeansthat
 t
her
eisasenseofbel
ongi
ngness.
• I
tfaci
l
itat
estheexi
stenceofgoodindust
ri
alr
elat
ionsbet
weent
he
managerandthei
rsubordi
nates.
• Itfacil
it
atest
heexi
stenceofdi
sci
pli
nei
ntheorganizat
ionmeani
ngt
hati
t
providesworker
sandmanagerswithasenseofdir
ecti
on.
• I
tfacil
it
atesef
fi
cientandef
fect
iver
esour
ceut
il
izat
ionmeani
ngt
hat
wastageismini
mi zed.
Di
sadvant
agesofFi
shboneDi
agr
am

• I
tisat
ime-
consumi
ngt
echni
que.
• I
tisatechni
quewhi
chisquiet
,compli
catedandcanbedi
ff
icul
tto
i
mplementandsust
ainoveralongper
iodofti
me.
• Iti
ncreasescost
stotheorgani
zati
onbecauset
her
eisneedt
ogat
her
data,
analyzeandfi
ndsoluti
ons.
• Foritt
obesuccessf
ulther
eisneedforamoti
vatedworkforceand
mangersmustbesupporti
veandwhenthesecondit
ionsarenotavai
labl
e,
thesyst
em maybediff
icul
ttoi
mplement.
Economi
cOr
derQuant
it
y(EOQ)

• Iti
stheorderquant
it
ythatmi
nimi
zest
otali
nvent
oryt
hati
shol
dingcost
s
andorder
ingcosts.
• I
tisoneoft
heol
destcl
assi
cal
product
ionschedul
ingmodel
s.
• Theframeworkusedtodet
erminet
heor
derquant
it
yisknownast
he
‘
WilsonEconomicOrderModel
’
.
• I
twasdevel
opedbyFor
dW.Har
ri
sandwasf
urt
herr
edesi
gnedbyWi
lson.
• Economicorderquanti
tycanal
sobeappl
iedwhendemandf
orapr
oduct
i
sconstantovertheyears.
• Ther
eisfi
xedcostf
oreachor
derpl
acedr
egar
dlessoft
henumberof
uni
tsor
dered.
• Ther
eisal
soacostf
oreachuni
thel
dinst
orageknownasst
ockhol
ding
cost
s.
Assumpt
ionsoft
heEconomi
cOr
derQuant
it
y

• Theor
der
ingcost
sar
econst
ant
.
• Ther
ateofdemandi
sknownandspr
eadevenl
ythr
ought
heyear
.
 • Thel
eadt
imei
sfi
xed.
• Leadtimei
sthet
imei
nter
valbet
weenpl
aci
nganor
derandr
ecei
vingt
hat
order
.
• Thepurchasepr
iceoft
hei
tem i
sconst
antandt
her
eisnodi
scount
avai
labl
e.
• Thereplacementi
smadei
nst
ant
lymeani
ngt
hatt
hewhol
ebat
chi
s
del
iver
edatonce.

Wher
e:

-
C = purchaseprice/
unitproduct
ioncost
,
-
Q = orderquanti
ty,
Q* =
- opti
mum or derquanti
ty,
-
D = annualdemandquant ity,
-
K = fi
xedcostperor der
,
-
H = annualholdingcostaperunit
.

Or
der
ingCost
s

• Thi
sist
hecostofpl
aci
ngor
der
s.
Hol
dingCost
s

• Thi
sist
heaver
agequant
it
yonst
ock.
Advant
agesofEconomi
cOr
derQuant
it
y

• I
tisl
essexpensi
vecompar
edt
oot
herst
ockcont
rolt
echni
ques.
• I
tistheonl
yst
ockcont
rolt
echni
quewhi
chi
susedt
omi
nimi
zet
otal
i
nventor
y.
• I
treducescost
stot
heor
gani
zat
ion.
• Theorgani
zat
ionwil
lbeabletomeetunexpect
eddemandi
ncr
ease
becauseoft
hefactt
hattheykeepst
ock.
• Theor
gani
zationmaynotbeaf
fect
edbyt
hepr
obl
emsassoci
atedwi
th
st
ockshor
tages.
Di
sadvant
agesofEconomi
cOr
derQuant
it
y

• Themodelassumest
hator
der
ingcosti
sconst
antofwhi
cht
hismaynot
betr
ue.
 • I
tassumesthattherat
eofdemandisknowntobeconst
antt
hroughout
t
heyearbuti
nr eal
it
y,demandmaynotbeconst
ant
.
• Itworkswellwhentheleadti
meisf
ixedofwhi
cht
hel
eadt
imemaynot
befixedduetotranspor
tprobl
ems.
• I
tisdi
ff
icul
ttomai
ntai
nthepr
iceofapr
oduct
.
• I
tonl
yworkswhenonesingl
epr oducti
sinvol
vedandi
fther
eismor
e
t
hanoneproducti
twi
llbedi
ff
icultt
ouse.
• I
tinvol
vesalotofmat
hemat
icalcomput
ati
onswhi
chi
sdi
ff
icul
t,compl
ex
t
ocalculat
e.
Mat
eri
alRequi
rementPl
anni
ng(
Comput
erBasedSt
ockManagement
)

• Materi
alRequi
rementPlanni
ngi
sacomput
er-
basedpr
oduct
ionpl
anni
ng
andinvol
vescontr
olsystem.
• I
tisconcer
nedwi
tht
hepr
oduct
ion,
schedul
ingandi
nvent
orycont
rol
.
• Iti
samateri
alcont
rolsyst
em t
hatatt
emptst
okeepadequat
elevelt
o
ensur
ethatt
hematerial
sareavai
labl
ewhenneeded.
• I
tisappl
icabl
einsi
tuat
ionsofvar
iet
yit
emswi
thcompl
exbi
ll
sof
mater
ial
s.
• Mat
erialRequi
rementPl
anni
ngisnotusefult
oor
gani
zat
ionswhi
chuse
j
obproducti
onandconti
nuousproduct
ion.
Obj
ect
ivesofMat
eri
alRequi
rementPl
anni
ng

• Toensur
et heavai
labi
li
tyofmateri
als,
component
sandpr
oduct
sfor
pl
annedproducti
onandf orcust
omerdeli
ver
y.
• Tomai
ntai
nthel
owestpossi
blel
evelofi
nvent
ory.
• Toplanmanuf
act
uri
ngi
ndust
ri
es,
del
iver
yschedul
esandpur
chasi
ng
act
ivi
ti
es.
Advant
agesofMat
eri
alRequi
rementPl
anni
ng

• Itcanbeusedint
her
educti
onofstockcutcost
sbecausei
tensur
est
he
avail
abi
li
tyofr
awmater
ial
sforpl
annedproduct
ion.
• Itmaint
ainsthel
owestpossi
blel
evelofi
nvent
oryt
her
ebyr
educi
ngst
ock
holdi
ngcosts.
• Iti
stheonlyst
ockcont
rol
li
ngtechni
quewhichi
susedi
nsi
tuat
ionsof
vari
etyi
temswithcompl
exbil
lsofmater
ial
s.
Di
sadvant
agesofMat
eri
alRequi
rementPl
anni
ng

• I
tresul
tsi
nadependentsyndr
omehencewor
ker
slacki
nnovat
ion.
• Ther
ear emanypressur
est
oincr
easeleadti
meinaMat er
ial
Requi
rementPlanni
ngandt
hismayresulti
nhighl
evel
sof
unemployment
.
• I
tmaysuf
ferf
rom syst
em f
ail
ure.
• I
tincr
easescost
stot
heor
gani
zat
ion.
• Mat er
ialRequir
ementPl
anningexpect
stheleadti
met obeconstant
regardlessofhowmuchwor khasbeenrel
easedintotheproduct
ion
system andt hi
scancr
eateprobl
emswhenpr oduct
ionlevel
sareator
nearcapacity.
St
ockCont
rolChar
t

• Iti
sastockcont
rol
li
ngtechni
quet
hatinvol
vestheuseofchart
swhich
showtheamountofstockint
ermsoforderofgoodsanduti
li
zati
onof
goodsbythecust
omer.
• Stockcont
rolchar
tsal
l
owtheor
ganizati
ontodet
ermi
neort
omakea
decisi
ononwhen,howandwhattoproduce.
• I
tspeci
fi
estheamountofgoodst
hatacompanyshoul
dor
derandt
he
t
imeofdeli
ver
y.
• I
tal
soshowst
hereor
derl
evelmeani
ngt hati
tspeci
fi
est
hepoi
ntat
whi
cht
hebusi
nesscanpl
aceanewor der.
• Thestockcont
rolchartalsospecif
iestheamountofr
ecentst
ockst
hat
shoul
dbekepttopr eventstock-
outs.
• Thebusi
nessdoesnotwai
tforst
ockt
odepl
etesot
heyr
eser
vet
hest
ock
l
evel
.
• Ont
hechart
,thest
rai
ghthor
izontall
inei
ll
ust
rat
est
hel
evelofst
ockwhi
le
t
hesl
ant
ingli
neshowstheutil
izat
ionofst
ock.
• Itspeci
fi
esthattheminimum andmaxi
mum st
ockl
evel
sabusi
nesscan
holdatanyparti
culart
ime.
St
ockCont
rolChar
t
Advant
agesofSt
ockCont
rolChar
t

• Itmakesi
teasi
ert
orunandcontr
olstocksi
mplybecausest
ockcontr
ol
chart
sspeci
fyt
heamountandtheti
mewhent hequali
tyofr
awmat er
ial
s
shoul
dbeorder
ed.
• Itmakesiteasyfort
hebusi
nesstomakenecessaryarr
angements
becauseitspeci
fi
estheamountofthel
eadtime.Thi
srefer
stot
hetime
i
ntervalbet
weenplaci
nganorderandrecei
vingt
heorder.
• Ithel
psthebusi
nesst
oavoidstock-
out
sgiventhatrawmater
ial
sarere-
order
edwhenstockhasdecl
inedandareservestocki
skeptt
ocaterf
or
anyunexpect
eddemandincr
eases.
• I
thelpst
hecompanytoeff
ici
entl
yandeffect
ivel
yut
il
izer
esour
ces
t
hroughmini
mizat
ionofr
esourceswast
age.
• Iti
satechniquewhi
chi
smostsui
tabl
eforl
argebusi
nessest
hatoper
ate
onalargerscal
e.
Di
sadvant
agesofSt
ockCont
rolChar
t

• I
trequi
ressomer
esear
chmeani
ngt
hati
tisacost
lyt
echni
que.
• Astockcontrolchar
trequi
resconti
nuousmotivat
ionandeval
uat
ion
meaningthatiti
samor elabor
ioustechni
que.
• Itcanr
esul
tinani
ncreasei
nwar
ehousi
ngcost
ssuchasi
nsur
ancecost
s,
damagesandobsol
escence.
• I
trequi
resexper
iencedproduct
ionmanagersandst
ockcont
ri
but
ion
whicharever
yexpensivetohir
eoremploy.
 • Stockcont
rolcharti
sdiffi
cultt
oimplementi
nanunst
ableeconomic
envir
onmentwhereitmi ghtbedif
fi
cultt
odet
ermi
nethequanti
tyt
oor der
,
ti
meanddel i
veryofstock.
• I
tisdi
ff
icul
ttoest
imat
ethel
eadt
ime.
TwoBi
nMet
hod

• Thet
wobi
nsyst
em i
saver
ysi
mpl
econt
rol
li
ngt
echni
que.
• Iti
sveryeasytounder
standandpr
act
ical
lyappl
iedpr
ovi
dedwar
ehouses
areavai
labl
e.
• Itf
aci
li
tatesstockrot
ationandi
sasaf
eguar
dtot
hebusi
nessf
ort
her
isk
ofobsolescenceofstocks.
• Thetwobinsyst
em requi
rest
hatt
heor
gani
zat
ionf
il
lst
het
wobi
nswhen
order
ingr
awmat er
ial
s.
• Af
tert
hef
ir
stbi
nhasbeenf
il
ledt
hent
hesecondbi
nwi
llbeut
il
ized.
• I
not
herwor
ds,
thet
wobi
nsyst
em cont
rol
sst
ockbyr
otat
ingwar
ehouses.
Advant
agesofTwoBi
nMet
hod

• Thet
wobi
nmet
hodi
saver
ysi
mpl
est
ockcont
rol
li
ngt
echni
que.
• Iti
sveryeasytounder
standandpr
act
ical
lyappl
iedpr
ovi
dedwar
ehouses
areavai
labl
e.
• Itf
aci
li
tat
esstockrot
ati
onandthi
ssaf
eguar
dsthebusi
nessf
rom t
her
isk
ofpossi
bleobsol
escenceasst
ocksar
erot
ated.
• I
tpr
event
sstockcutcostssi
ncerawmat
eri
alsareorder
edi
nbul
kand
t
wowarehousesar
ef i
ll
edwit
hstockwhi
chrotat
es.
• I
tresul
tsinenjoymentofeconomiesofpr
oducingbecauset
wobi
n
methodrequi
resthatrawmateri
alsmustbeorderedi
nbulk.
Di
sadvant
agesofTwoBi
nMet
hod

• I
tincr
easeswar
ehousingcost
s.Stor
agecostsar
erel
ati
vel
yhi
ghgi
ven
t
hatallt
hetwowarehousesmustbefil
ledwi
thst
ock.
• I
nsur
ancecost
sar
erel
ati
vel
yhi
ghandt
heval
ueofl
osswi
llbever
yhi
gh.
• I
tmightf
orcethebusi
nesstosuff
erpossibl
eobsol
escenceevenifstock
i
srot
atedbecausesomestockcanbeaffectedbyt
echnologychanges.
• Damagescanal sobehighbecauseofbul
kordersandst ockages.Thi
s
i
ncreasesunnecessar
ycostsascomparedtoothertechniques.
Par
etoRul
eEf
fi
ciency/
Tri
vial

• I
tisast
ockmanagementt
echni
quewhi
chi
sbasedonr
easoni
ng.
• I
tst
atest
hatal
lcompani
escat
egor
izet
hei
rst
ocksi
ntot
wogr
oups.
• 80%ofthest
ocki
slessi
mpor
tantwhi
le20%oft
otalst
ocki
smor
e
i
mport
ant.
• 80%oft
het
otal
stockcont
ri
but
es20%oftherevenueandprofi
tswhi
le
20%oft
het
otal
stockcont
ri
but
esto80%ofrevenueandprofi
ts.
• Sot
heor
gani
zat
ionmustcar
eful
lymoni
tort
he20%ofi
tst
otalst
ock.
Advant
agesofPar
etoRul
eEf
fi
ciency

• Itact
sasacompl i
mentarystr
ategytootherst
ockcontr
oll
ingtechni
ques
suchasstockcontr
olchartmeaningthati
thel
psintheimplementat
ion
ofothert
echni
ques.
• I
tal
sohel
pst
oreducedamage,
obsol
escenceandwar
ehousi
ngcost
s.
• Ithel
psinmini
mizi
ngunnecessar
ycost
sbecauseitr
equi
rest
hatt
he
organi
zati
ongi
vesatt
ent
iontomoreimpor
tantst
ock.
Di
sadvant
agesofPar
etoRul
eEf
fi
ciency

• I
tdoesnotspecif
ical
lystat
ewhatshoul
dactual
lybedonet
ocont
rolt
he
movementofstockintoandoutoft
heorgani
zat
ion.
• Ital
soresul
tsi
nnegl
igencemeani
ngthatt
heor
gani
zat
ioncanendup
neglect
ingt
heuni
mportantst
ockwhi
chmaybeveryi
mportant
.
• Theor
gani
zat
ioncanrunt
her i
skofpr
oduci
ngpoorqual
it
yproducts
gi
vent
hatsomelessi
mportantst
ockmaynotbegi
venattent
ion.
• TheParetor
ulecannotbepract
ical
lyusedoni
tsownbuti
tmustbe
combinedwit
hothertechni
quessuchasJustI
nTime,St
ockcont
rol
char
ts.
Cr
it
icalPat
hAnal
ysi
s(Net
wor
kAnal
ysi
s)

• I
tref
erstoagener
alt
ermthatdefi
nesanumberofquant
it
ati
ve
t
echniquest
hatar
eusedi
npr oj
ectmoni
tor
ingandi
mplementat
ion.
• Networ
kanal
ysi
sisi
mpl
ement
edwhenunder
taki
ngpr
ojectpr
oduct
ion
pr
ocess.
Pr
oject
 • Iti
sacollect
ionofi
nter
rel
atedact
ivi
ti
esdesi
gnedt
oachi
eveacommon
purpose.
• Apr oj
ectincl
udesanumberofact
ivit
iesthatarecombinedthrough
producti
onprocesst
oestabl
ishi
nfrastr
uctureasproducts,
forexampl
e,
roads.
• I
tal
sohel
psinal
l
ocati
onofresour
cesanddet
ermi
ningt
otalt
ime
r
equi
redt
ocomplet
eaproj
ect.
Advant
agesofNet
wor
kAnal
ysi
s

• I
tfaci
l
itat
est
hepl
anni
ngandcoor
dinat
ionofl
argepr
oject
s.
• Itcanbeusedbyanorganizat
iont
oident
if
ycr
it
icalact
ivi
ti
est
hat
deter
minethet
otaldur
ati
on.
• Theorgani
zat
ionwi
llbeabl
et oi
denti
fyact
ivi
ti
est
hatar
eli
kel
ytocause
del
aysandtakeact
ionontheseprobl
ems.
• Theorgani
zati
onmaybeablet
odet
ermi
newhenr
esour
cesand
componentsarer
equi
red.
• I
tcanbeusedt
oef
fect
ivel
ypl
anont
heuseofr
esour
ces.
• I
tcanbeusedt
oreduceandel
imi
nat
eidl
eness.
• I
til
lust
rat
est
askr
elat
ionshi
p.
• I
tcanbeusedt
opi
npoi
ntpr
obl
em ar
eas.
Di
sadvant
agesofNet
wor
kAnal
ysi
s

• Theor
gani
zat
ionmaybehi
ghl
yuncer
tai
noft
hef
utur
eoft
hepr
oject
.
• Resour
cesandl
aborcannotbeeasi
lyswi
tchedf
rom oneact
ivi
tyt
o
anot
her.
• Net
wor
kdi
agr
amsar
edi
ff
icul
ttodr
aw,
touseandt
ounder
stand.
• Crit
ical
pathanal
ysiscanbeaf
fectedbysubject
ivet
imeest
imat
esand
theseesti
matesarepronet
obelessrel
iabl
e.
Dr
awi
ngaNet
wor
kDi
agr
am

• Anet workdiagram i
sagraphi
calorapict
ori
ali
ll
ust
rati
onofthe
sequentialar
rangementofact
ivi
ti
esmakingupaprojectandthe
resourcesconsumedbyeachact i
vit
y.
Rul
esofNet
wor
kDr
awi
ng
 • Theyar
edr
awnf
rom l
eftt
ori
ght
.
• Al
lact
ivi
ti
esi
ntheschedul
eofapr
ojectmustf
iti
ntot
hedi
agr
am.
• Hor
izont
all
inesont
hedi
agr
am r
epr
esentkeyact
ivi
ti
es.
• Act
ivi
ti
esar
elabel
edusi
ngl
ett
ers.
• Cir
clesr
epr
esentst
art
ingevent
sorf
ini
shi
ngevent
sandt
hesear
ecal
led
nodes.

• Resour
cesort
imeusedbyanact
ivi
tyar
eshownbel
owbyt
hehor
izont
al
l
ine.
Di
agr
am

• Nodesar
enumber
edaccor
dingt
oor
derofdr
awi
ng.
Di
agr
am

• Nosucceedi
ngact
ivi
tywi
llst
artbef
oret
hepr
ecedi
ngact
ivi
tyhasbeen
compl
eted.
Di
agr
am

• Aprecedi
ngacti
vit
yisanact
ivi
tyt
hatcomesf
ir
stbef
oreanot
heract
ivi
ty
st
art
s,forexampl
e,Acomesfir
stbef
oreB.
Exampl
e

Act
ivi
ty Pr
ecedi
ngact
ivi
ty

A -
B A
C A
D B
E C
F D
G E,F

Di
agr
am

I
dent
if
yingCr
it
icalPat
hAnal
ysi
s

• I
tist
hemosti
mpor
tantpat
honanet
wor
kdi
agr
am.
 • Iti
smadeupofi mpor
tantact
ivit
ieswhi
chshoul
dneverbedel
ayed
becausei
fther
eisdel
ay,theproj
ectbecomesdi
ff
icul
ttocompl
ete.
• Cri
ti
calpat
hanal
ysi
sdet
ermi
nest
hemi
nimum t
imer
equi
redt
ocompl
ete
theproj
ect
.
Fl
oat

• Iti
stheamountoft
imethatanacti
vit
yint
henocrit
icalpat
hcanbe
del
ayedwit
houtaff
ect
ingthepr
ojectcompl
eti
on.
DummyAct
ivi
ti
es

• Adummyact
ivi
tyi
sanact
ivi
tyt
hatnei
therconsumest
imenorr
esour
ces.
• Iti
sani
magi nar
yact
ivi
tyont
henet
wor
kdi
agr
am whi
chi
sshownbyt
he
dott
edl
ine.
Di
agr
am

Fl
oatAct
ivi
ty

• Fl
oatr
efer
stot
heamountofst
ockt
hatexi
stsf
rom nocr
it
icalact
ivi
ti
es.
• Iti
sthet
imeanact
ivi
tycanbedel
ayedwi
thoutdel
ayi
ngt
hecompl
eti
on
ofthepr
oject
.
TypesofFl
oatAct
ivi
ti
es

1.Tot
alf
loat

• Iti
stheamountofti
meapat hofact
ivi
ti
escanbedel
ayedwi
thout
aff
ecti
ngtheover
all
proj
ectcomplet
ion.
2.Fr
eeFl
oat

• Iti
stheamountoft
imeanact i
vit
ycanbedel
ayedwi
thoutaf
fect
ingt
he
commencementofthenextacti
vit
y.
3.I
ndependentFl
oat

• Iti
stheamountofti
meanacti
vit
ycanbedelayedwhenpr
ecedi
ng
acti
vit
yhasbeencompl
etedasl
ateaspossi
ble.
Exampl
e2

November2012

Act
ivi
ty Pr
ecedi
ngact
ivi
ty
A -
B A
C A
D A
E B
F D
G B,
C,F
H E

Dr
awanet
wor
kdi
agr
am usi
ngt
heabovei
nfor
mat
ion.

Answer

Di
agr
am

I
MPACTOFI
CTONPRODUCTI
ON/
OPERATI
ONSMANAGEMENT

• Comput eruse,int
ernetaccessandwebpresencei
nproduct
ionis
associatedwithsigni
fi
cantl
yhigherout
putandsal
esperemployee(
labor
producti
vity)
.

•
 Chapt
er10

QUESTI
ONS:FI
NANCEANDACCOUNTI
NG
 FI
NANCEANDACCOUNTI
NG

Fi
nancei
sthemoneyormoneyequi
val
ent
sthatarerequi
redt
orunabusi
ness.
I
tist
hecapi
talneededt
ofundf
ort
hefi
rm’
sacti
vit
ies.

Account i
ngisaprocessofi
denti
fying,
measur i
ngandcommuni cat
ing
economi cinf
ormati
ontopermi
tinformeddecisi
onsbyusers.I
tisasystemati
c
recordingofbusi
nesstr
ansact
ionssot hatt
hestat
eofthebusinessisful
ly
revealed.

ReasonswhyBusi
nessesr
equi
reFi
nance

• Start
upcapit
al–f i
nanceisrequi
redtoest
abl
ishabusi
ness,
thati
s,
purchaseofstar
tupequipmentetc.
• Growt
h–itisneededinthecasewhereabusi
nesswi
shest
oexpand,
for
exampl
e,t
hroughtakeover
s,merger
sori
nter
nalgr
owt
h.
• Worki
ngcapi
tal
needsf
inancet
ofundt
hedayt
odayact
ivi
ti
esoft
he
busi
ness.
• Resear
chanddevel
opment–f
inanceisneededf
ordevel
opmentofnew
pr
oductsandr
esear
chint
onewmar ket
s
• Capi
talexpendi
tur
e–busi
nessesneedf
inancet
ofundt
hepur
chaseof
fi
xedassets.
 • Fi
nancei
sneededi
nor
dert
odealwi
thi
ncr
easi
ngor
der
sfr
om cust
omer
s.
Rol
eofAccount
ingandFi
nanceDepar
tment

• Thi
sfunct
iondeal
swi
tht
hemoneyaspectoft
hebusi
ness.
• Theaccount
ingf
unct
iondeal
swi
th:
• Ther
ecor
dingoft
ransact
ions.
• Keepi
ngdet
ail
sofevent
soft
hebusi
ness.
• Cal
cul
ati
onofpr
ofi
ts,
li
qui
dit
ylevel
sandr
etur
noni
nvest
ment
s.
Thef
inancef
unct
ioni
nvol
vesmaki
ngdeci
sionsabout
:

• Met
hodsofr
aisi
ngf
inance.
• Cashf
lows.
• Debtcont
rol
.
• Expendi
tur
e.
TypesofExpendi
tur
e

1.Capi
talExpendi
tur
e

• Thisisspendingofmoneyonit
emswhichl
astf
oral
ongper
iodoft
ime,
forexample,machiner
yandequi
pment
.
• Moneymaybespentonacqui
ri
ngori
mpr
ovi
ngf
ixedasset
s.
• I
mprovi
ngoraddi
ngval
uet
oexi
sti
ngasset
smayext
endt
heusef
ull
if
eof
t
heasset
s.
• Forexample,pur
chasingplantandequipment,
transpor
ti
ngfixedasset
s
i
ntothebusinessinvol
vingimportdut
y,impr
ovement scost
set c.
2.RevenueExpendi
tur
e

• Thisismoneyspentt ocoverthedai
lycost
softherunningoft
he
business,
forexample,purchasi
ngofgoodsforr
esale,
wages,pet
tycash,
tel
ephone,repai
rsandfuel.
Cl
assi
fi
cat
ionofSour
cesofFi
nance

Debtvs.Equi
tyFi
nance

• DebtFinance–i st
hetotalamountowedbyabusi nessandhast
obe
repai
dwithint
erest
,forexampl
e,loans,
debent
ures.
 • Equi
tyfinance–i stheamountofmoneybel ongingtoorpr
ovi
dedbyr i
sk
-t
aki
ngowner softhebusi
ness.Thesaleofequit
ystakeinabusi
ness
i
nvolvessurrenderofashareofbothfutur
eanddecisionmaki
ng,for
example,ordi
naryshares.
Diff
erencesbetweenLoanandEqui tyFinance
ShareCapital LoanCapi tal
Representsowner shi
p. Representsdebt .
Confersmember ship. Creditornotamember .
Divi
dendsar epartoftheearningsoft
he I nt
erestisanexpense
fi
rm.
Confersvoti
ngr i
ghts Creditorhasnor ighttopar
ti
cipat
e.
Divi
dendsar epaidattheboard’s Haspr i
ori
tyondi vi
dends.
di
screti
on.
Nopowert of or
cel i
qui
dation. Cabf orceli
quidation.
Havenomat uri
tydate. Loanmustber epaid.
Li
kelytocreatelowgear i
ng. Highlygear ed.

I
nter
nalvs.Ext
ernalSour
cesofFi
nance

I
nter
nalFi
nance

• I
tisf
inancef
rom t
hef
ir
m’sownasset
sandr
etai
nedpr
ofi
ts.
Ret
ainedEar
nings

• Theseareprof
it
sthatar
enotsharedasdi
videndsbutploughedbacki
nto
thebusi
ness.Thi
sisapermanentsour
ceoffinanceandinter
nal
.
Advant
agesofRet
ainedPr
ofi
ts(
asaSour
ceofI
ncome)

• I
tisaper
manentsour
ceoff
inance.Ther
eisnor
epayment
.
• I
tisacheapsour
ceofi
ncome,
ther
eisnoi
nter
estchar
ges.
• I
tdoesnotdi
videowner
shi
pasnoshar
eofbusi
nessi
sspl
it
.
• I
tdoesnoti
ncr
easet
hel
iabi
li
tyoft
hef
ir
m.
• Thi
sfaci
li
tat
esmor
eint
ernalgr
owt
h.
Di
sadvant
agesofRet
ainedPr
ofi
ts(
asaSour
ceofI
ncome)

• I
tisonl
yappl
icabl
ewhent
hebusi
nessi
smaki
ngpr
ofi
ts.
• Conf
li
ctsmayari
sebetweent
hesharehol
dersandmanager
sovert
he
amountofmoneytor
etai
ninthebusi
ness.
• I
ttakest
imet
orai
semor
efundsf
orpr
oject
sasoneyear
’sr
etai
nedpr
ofi
t
 maynotbesuf
fi
cient
.
Ext
ernalSour
ce

• Thi
sisf
inancebyout
sides,
forexampl
e,banks,
gover
nment
set
c.
Diff
erencesbet
weenExt
ernalandInter
nalFinance
Exter
nalFi
nance Int
ernalFi
nance
Provi
dedbyoutsiders. Raisedfr
om thefirm’
sassetsand
ret
ainedprof
it
s.
Forexampl
e,bansgover nment. Forexample,ret
ainedpr
ofi
ts.

Shor
t-
Ter
m Sour
cesofFi
nance

• Thisisthefi
nanceforper
iodsofupto3year
s,f
orexampl
e,l
oans,
bank
overdraf
ts,
tradecr
edit
,debtf
actor
ing.
1.BankOver
draf
t

• Thi
siswhenthebusiness’bankal
lowsthef
ir
mtowi
thdr
awmor
emoney
outoft
heaccountt
hant heyhavei
ni t
.
• Thi
sisaflexi
blef
orm off
inance.I
tisunsecur
ed,r
enewabl
eandint
erest
i
schargedonlyonthenegati
vebalanceoutst
andi
ngeachday.
Advant
agesofaBankOver
draf
t

• I
nter
esti
schar
gedonl
yont
henegat
ivebal
anceout
standi
ng.
Di
sadvant
agesofaBankOver
draf
t

• Over
draf
tsar
etechni
cal
lypayabl
eondemand.
• Int
erestr
atesr
efl
ectcur
rentmar
ketr
atesr
athert
hanbei
ngf
ixedi
n
advance.
2.Tr
adeCr
edi
t

• Thi
sist
hedel
ayedpaymentf
ormat
eri
als.
• Thesuppl
ierpr
ovi
desgoodswi
thoutr
ecei
vingi
mmedi
atecash.
• Thesel
lerencour
agespr
omptpaymentbymeansofdi
scount
s.
Advant
agesofTr
adeCr
edi
t

• Thi
sisani
nter
est
-f
reel
oan.
• I
thasf
ewl
egalt
ermsascompar
edt
oabankover
draf
t.
3.DebtFact
ori
ng
 • Whenafi
rm exper
iencespr
obl
emsorcust
omersdel
aypayment
s,t
he
f
ir
m maysel
lthedebtstoadebtf
act
ori
ngcompany.
• Thef
act
ori
spr
epar
edt
opur
chasedebtatadi
scount
.
• Thef
act
orpayst
hef
ir
m andt
hencol
lect
sfr
om t
hedebt
ors.
Advant
agesofDebtFact
ori
ng

• Thef
ir
m canr
ecei
vecashi
mmedi
atel
yfr
om t
hef
act
or.
• Thi
savoi
dsbaddebt
s.
• I
tdoesnoti
ncr
easet
hel
iabi
li
ti
esoft
hef
ir
m.
• I
timpr
ovest
hel
iqui
dit
yoft
hef
ir
m.
• I
tcangener
atef
inancef
orpet
tyday-
to-
dayact
ivi
ti
es.
Di
sadvant
agesofDebtFact
ori
ng

• Thef
act
orgi
vest
hef
ir
m moneyaf
terr
emovi
ngadi
scount
.
• Thi
scannotbesui
tabl
eforf
inanci
ngl
argepr
oject
s.
• Thi
scant
arni
sht
hecompany’
simage.
• I
tcansourt
her
elat
ionshi
pbet
weent
hef
ir
m andt
hecust
omer
.
4.Sal
eofAsset
s

• Thi
siswhenthef
ir
m sel
lsf
orcashei
therst
ocksorf
ixedasset
s.Thi
scan
bedonebyl
oweri
ngthepri
ce.
Advant
agesofSal
eofAsset
s

• I
tiseasi
ert
hanhi
repur
chaseandl
oans.
• Nocommi
tmentt
oint
erestpayment
s.
• Hel
pst
hef
ir
mtogetr
idofi
dleasset
s.
• Hel
psavoi
dover
stocki
ngofgoods.
Di
sadvant
agesofSal
eofAsset
s

• Theasset
smi
ghtbeofusei
nthef
utur
e.
• I
nthecaseofstocks,
theycanbesol
datal
owpr
iceorl
owert
hancost
s
t
oclearst
ocks.
• Someasset
scanwor
kascol
lat
eral
.
5.Shor
t-
Ter
m Loan

• Aloani
safixedsum ofmoneyl
entf
oraper
iodnotmor
ethant
hree
year
sonaverage.
Medi
um Sour
cesofFi
nance

• Thesear
esourcesoffi
nancethatcoveraperi
odofbet
weenthreet
oten
year
soffi
nance,f
orexample,
hirepurchase,
bankl
oan,l
ease,
saleand
l
easeback.
1.Hi
rePur
chase

• I
tisamethodofpur
chasi
nggoodsoncr
edi
tandpayment
sbei
ngmade
i
ninst
all
ments.
• Thefinanci
erremai
nsthelegalowneroftheassetunt
ilt
hehirer
exer
ciseshisorheropt
iontopurchaseattheendoftherepayment
peri
od.
• Thehi
rerpaysadeposi
tthenpayst
her
atesi
nequali
nst
all
ment
s.
Advant
agesofHi
rePur
chase

• Paymenti
sphasedoveral
ongper
iodoft
ime.
• Thef
ir
m canuset
heassetwhi
lepayi
ngf
ori
t.
• Moneygener
atedf
rom t
heuseoft
heassetcanbeusedt
opayt
he
i
nst
all
ments.
• Theasseti
sunderguar
ant
eedur
ingt
hisper
iod.
• Buyingonhir
epurchaseprevent
sthef
ir
mfr
om havi
ngabi
g/huge
expendi
tur
eperaccount.
• Sui
tabl
eforl
argerpr
oject
sanddur
abl
es.
Di
sadvant
agesofHi
rePur
chase

• Thesell
err
epossessest
hegoodsi
fthef
ir
mfai
lst
opaywi
thi
nthe
st
ipul
atedper
iod.
• Goodsboughtonhi
repur
chasear
eexpensi
vet
hant
hoseboughtoncash
basi
s.
2.Leasi
ng

• Thisi
ssimi
lart
oahi
repur
chasebutdoesnoti
nvol
vet
hepaymentofa
deposi
t.
 • Leasi
nginvol
vest
heacqui
sit
ionofanassetbutowner
shi
pdoesnotpass
totheuser
.
• Aleaseisameansoff
inanci
ngt
heuseofanassetr
athert
hani
ts
purchase.
Advant
agesofLeasi
ng

• I
tmi
nimi
zesi
nit
ialout
lay.
• Mai
ntenancei
spr
ovi
dedwi
tht
hepackage.
• Theequi
pmentcancl
aimt
axagai
nstl
easepayment
s.
• I
tisaf
orm ofpayasyouuse.
Di
sadvant
agesofLeasi
ng

• Al
lpayment
sar
eout
goi
ngs.
• Paymenti
sgr
eat
eri
nthel
ongr
un.
• Thel
easemi
ghtpl
aceli
mit
ati
onsonuseorcompelt
heuseofaspeci
fi
ed
compl
ement
arypr
oduct
.
• Theuserdoesnotbenef
itf
rom r
esi
dualval
uewhent
heequi
pmenti
s
upgr
aded.
• Theasset
sunderl
easecannotbeusedascol
lat
eralf
orl
oans.
• Thef
ir
m doesnotownt
heasset
.
3.Sal
eandLeaseback

• Thisi
nvolvesthesal
eofanassetbyt hebusi
nesssuchasabui l
dingt
o
fi
nancethecompany.Thesal ei
smadet oabuildi
ngtofi
nancethe
companyt hatmakestheassetavai
labl
eforusetothebusi
nessona
l
easedbasi s.
Advant
agesofSal
eandLeasebacks

• I
trel
easescapi
talf
orusei
nthebusi
ness.
• I
tcanbeusedt
ofi
nancehugepr
oject
s.
• I
tdoesnoti
ncr
easet
hel
ong-
ter
m debt
soft
hecompany.
• Thef
ir
m cancont
inuet
ouset
heassetunderl
ease.
Di
sadvant
agesofSal
eandLeaseback

• Thebusi
nessnol
ongerownst
hepr
oper
tyandr
entmustbepai
d.
 • Leasepayment
sar
ecashout
fl
ows.
• Overt
imet
hel
easepayment
swi
llexceedt
heamountoft
hesal
e.
Long-
Ter
m DebtFi
nance

• Thesear
esour
cesoff
inancet
hatt
akeupt
otenyear
sormor
e.
• Long-
ter
m sourcesoff
inanceusual
lyt
akef
orm ofdebtf
inanceand
equi
tyfi
nance.
Long-
Ter
m DebtFi
nance

• Thi
sisal
oanf
inance.
• Ther
eisalegalobl
igat
iont
opayi
nter
estandt
hecapi
talamountwhen
thet
imei
sdue.
• I
nter
estmustbepai
dtoavoi
dlegalact
ion.
• Thisi
susual
lysecur
edagai
nstspeci
fi
casset
sandt
hisr
educescont
rol
overt
hem.
• Exampl
esi
ncl
udedebent
ures,
bankmor
tgages.
N.
B.:Wi
thdebtf
inance:

• Debtf
inancet
akespr
efer
encei
nli
qui
dat
ion.
• I
nter
esti
sanexpenseandmustbepai
dbef
oredi
vidends.
• Ther
ateofi
nter
esti
sei
therf
ixedort
iedt
othecur
rentbaser
ate.
• I
nter
estpayment
sar
etax-
deduct
ibl
e.
• I
tmaybesecur
edagai
nstspeci
fi
casset
s.
1.Debent
ures(
BondsorLoanSt
ock)

• Along-
ter
ml oansecur
edt
oacompanyt
hatt
akest
hef
orm ofa
market
ablesecur
it
y.
• Unl
ikeequi
tyshar
es,
theyconf
ernor
ightofowner
shi
p.
• Li
keshares,t
heycanbei ssuedatadi
ff
erentpr
icet
othenomi
nalval
ue
onwhichtheint
erestr
ateisfixed.
• Debenturesar
esecur
edagai
nstspeci
fi
casset
sorf
ixedasachar
geon
al
lassets.
Advant
agesofDebent
ures
 • Theydonotconf
ervot
ingr
ight
s.
• I
nter
estondebent
uresi
sat
ax-
all
owanceexper
ience.
• Thei
nter
estondebent
uresi
ser
odedi
nti
mesofr
isi
ngi
nfl
ati
on.
• Theydonothavecont
rolovert
hecompany.
• Debtcapi
tal
ischeapert
hanequi
tycapi
tal
.
Di
sadvant
agesofDebent
ures

• I
nter
estmustbepai
dwhet
hert
hecompanyhasmadeapr
ofi
torl
oss.
• Compani est
hatar
eheavi
lyf
inancedbydebent
uresar
evul
ner
abl
eto
takeover
s.
• Debent
uresi
ncr
easet
hegear
ing.
• Debent
ureswillhavet
obepai
dbackatthedat
eofmat
uri
ty.Thi
smi
ght
af
fectt
heliqui
dityoft
hef
ir
m att
hatt
ime.
2.Mor
tgages

• Thi
sisal
ong-
ter
mloansecur
edonpr
oper
ty.
• I
tisf
inancet
opurchaseassetsobt
ainedf
rom t
hecommer
cialbanks,
i
nsur
ancehousesandbuil
dings.
3.Long-
Ter
m BankLoans

• Theset
akeupt
otwent
yyear
s.
• Bankswil
lnor
mall
ywantthel
oansecuredagainstasset
sandwi l
linsi
st
thatt
hebusi
nessmai
ntai
nanadequatelevelofl
iqui
dit
ytocoveri
nt er
est
payment
s.
Dif
fer
encesbetweenShort
-Term andLong- Ter
m Fi
nance
Short-
Ter
m Long-Term
Fi
nanceforperi
odsuptothr
eeyears. Fi
nancef orperi
odsuptotwent
yyear
s.
Forexample,
bankoverdr
aft
s,t
rade Forexample,debent
ures,
long-
ter
m
credi
t. l
oans, shar
es.

Di
ffer
encesbetweenMedium andLong-Ter
m Finance
Medium-Term Long-Ter
m
Coversper
iodsbetweenthr
eetot en Coversperi
odofupt otenyear
s.
year
s.
Forexample,l
ease,l
oan,hi
repurchase. Forexample,mort
gages,debentur
es.
 Differ
encesbetweenMedi um andShort-
Term Fi
nance
Medi um-Term Short-
Term
Cover sper
iodsbetweenthr
eet oten Coversperi
odofupt ot
hreeyears.
years.
Forexampl e,l
ease,l
oan,hi
repurchase. Forexampl e,bankover
draf
t,t
radecredi
t,
loan.
FactorswhichAf f
ectt
heChoi ceofSourceofFinance

1.TypeandSi
zeoft
heBusi
ness

• Insmallf
irms,mostofthecapi
tal
ispr
ovidedbytheowner,
forexample,
sol
etraderswhereasl
argefi
rmsusual
lydependonshares,
debentur
es
andlong-
termloans.
2.Cost
s

• Obt
aini
ngloansisnotforf
ree.Loansmaybecomeexpensi
vedur
ing
per
iodofusi
nginter
estrat
es.
• I
nter
nalf
inanceshaveoppor
tuni
tycost
.
• Ther
efor
e,asour
cewi
thl
owcost
sisneededmost
.
3.TheNeedt
oCont
rolt
heBusi
ness

• Shar
eissuecanbeusedbyl
imi
tedcompani
essel
li
ngshar
est
othe
publ
ic.
• Issueofsharesdil
utesowner
shipunl
essi
tisarighti
ssue.Forfi
rmswho
desir
etoretaincont
rolsal
eofshar
esmightnotbeappropri
ate.
4.AmountRequi
red

• Somesour cesli
kecredit
s,r
etai
nedprofitsandborr
owingsfr
om friends
andrelat
ivescannotfi
nancehugeprojectsbutsomesourcessuchas
mor t
gages,shar
es,areusedforl
argesumsofmoneyhence, ifafir
m
requi
resmor emoney,iti
sli
kelyt
oconsi dermedium t
olong-
term sources.
5.Gear
ing

• Thisi
st heextentt
owhi chafi
rmisf
inancedbydebtcapit
al.Foraf
irm
thati
sal r
eadyhighl
ygeared,t
her
eisachanceofchoosingequityf
inance
andifitislowthefi
rm cangoonanduseloanfi
nances.
6.Cur
rentFi
nanci
alPosi
ti
on

• Ifabusinesshascashflowprobl
emsandi
smakinglosses,
theni
nter
nal
sourceswillnothel
pbutitcant
urnt
oshor
t-
ter
m sour
ces.
 7.Pur
poseofSour
ceofFi
nance

• Thi
sdet
ermi
nest
heamountr
equi
red.
8.Repaymentper
iod

• I
tcanbel
ongandaf
ir
m canchoosedependi
ngoni
tsobj
ect
ive.
Equi
tyFi
nance

• Thi
siswhencompani
esi
ssueshar
est
ofi
nancet
hebusi
ness.
• Theamountthatcanber ai
sedi
nthi
swayi
sli
mit
edt
otheaut
hor
ized
capi
taloft
hebusiness.
• Theshar
est
aket
hef
orm ofor
dinar
yandpr
efer
enceshar
es.
• I
trepr
esent
sowner
shi
p.
Or
dinar
yShar
es

• Thesear
etr
uer
iskcapi
tal
.
• Asowners,
equi
tyshar
ehol
der
spossessvot
ingr
ight
sandcanpar
ti
cipat
e
i
ndeci
sionmaki
ng.
• Theycomelasti
ntermsofbot
hdi
videndsandshar
einpr
oceedsofsal
e
ofasset
swhenli
quidat
ing.
Pr
efer
enceShar
es

• Thesecl
ear
lyi
nvol
vel
owdegr
eeofr
isk.
• Theyhaveaf i
xedshar
eofdi
videndandhavef
lexi
bil
it
yoveror
dinar
y
shar
eholder
s.
N.
B.:Ther
etur
nonshar
ehol
der
s’i
nvest
mentt
akest
hef
orm of
:

• Anannualdi
videndpai
doutofpr
ofi
ts.
• Acapi
talgai
nwhensharesar
esol
dforapr
icehi
ghert
hant
hatofwhi
ch
t
heywerepurchased.
Di
f f
erencesbetweenOr di
nar
yandPr eferenceShar eholders
Ordinar
yShar eholders Pref
erencesShar ehol ders
Confertovoti
ngr ight
s. Havenor i
ghtt ovoteunl essther
ear
e
somedi vi
dendsi nar r
ears.
Getavar i
abl
er ateofdivi
dend. Getafixedr at
eofdi vi
dend.
Theyaremor er i
skyasani nvest
ment. Lessr i
skyi nvestment
I
nt hecaseofl i
quidat
ion,t
heyarethe Incaseofl i
quidati
on, t
heyhave
l
astr
epai
d. pr
efer
enceoveror
dinar
yshar
es.

Met
hodsofI
ssui
ngShar
es

• I
npri
vat
ecompanies,shar
escanbei
ssuedpri
vat
elywi
thnoappealt
o
t
hepubl
icbutcompaniest
akeanumberofways.
1.Of
ferofSal
e

• Thisi
swhent hecompanysel
lsshar
est
oani ssui
nghouseormer
chant
bankthati
nturnoff
erst
hem t
othepubl
icatahigherpr
ice.
2.Publ
icI
ssue

• Theoff
erismadedir
ectl
ybythecompanyr
athert
hant
hroughani
ssui
ng
houseatamuchhigherpri
ce.
3.Pl
aci
ng

• Thesharesar
esoldpr
ivat
elyt
ocli
entsoft
heissui
nghousest
hathandl
e
thei
ssue.Thi
sismostcommonlyusedforsmall
eri
ssues.
4.Tender

• Theinvesti
ngpubli
cisi
nvi
tedt
osubmi
tbi
dswi
tht
heshar
esbei
ngsol
d
tot
hehi ghestbi
dder
.
• Marketpr
iceswillensur
ethatal
ltheshar
esar
ebei
ngsol
d,al
thought
he
pr
iceisuncert
ain.
5.Ri
ght
sIssue

• Exist
ingshar
eholder
saregivenanoptiontobuyaddit
ionalshar
esata
favourabl
epri
ce.Thi
sisseenasani nexpensi
vewayofr ai
singf
inances
butthecompanyi sf
orgoi
ngthehigherpremiumsthatwouldhavebeen
avail
ablei
ntheopenmar ket
.
6.BonusI
ssue

• Thesearei
ssuedfr
eel
ytoshareholder
s.Thisdoesnotrai
seaddi
ti
onal
fi
nancebuti
tisacapi
tal
izat
ionofaccumulatedreser
ves.
Val
ueofShar
es

• Shar
eshaveanomi
nalorf
aceval
uet
hatdoesnotal
ter
.
• Themarketshar
ewi
llf
luct
uat
ewi
thchangesi
nthedemandandsuppl
y
ofshar
es.
 • Themar
ketval
uei
sal
soaf
fect
edby:
• Thepr
ofi
tabi
li
tyoft
hecompany.
• Mar
ketexpect
ati
ons.
• I
nter
estr
ate.
• At
akeoverbi
d.
• Economi
cfact
ors.
Advant
agesofDebtFi
nance

• Ther
eisnodi
visi
onofowner
shi
p.
• Loanswillber
epai
dhencet
her
eisnoper
manenti
ncr
easei
nthe
l
iabi
li
ty.
• Tender
scannotvot
ehencet
heycannoti
nter
fer
eini
nter
nalaf
fai
rs.
• I
nter
estchar
gesar
eanexpensef
ort
ax.
Vent
ureCapi
tal

• Thisi
nvol
vest
hesaleofequit
yorasharei
nabusinesstovent
urecapi
tal
fund,
anot
herbusi
nessorgani
zat
ionoraweal
thi
ndividual
.
• Thevent
urecapit
ali
stbuysanequi
tyshar
einanunquot
edcompanywi
th
hi
ghgrowthpotenti
al.
• Thi
sinvol
vesr
iski
nthatt
hevent
urecapi
tal
isti
sthepar
towneroft
he
company.
• Theventur
ecapit
alist
sdonoti nvestpermanent
lybutseektoinvesti
na
growi
ngbusinessthatisexpectedtoprovi
desubstant
ialcapi
talgai
n
overaperi
odoftime.
• N.
B.:
• Themanagementofacompanycanpurchaset
hebusi
nesswith
fundspr
ovi
dedbyaventur
ecapi
tal
ist–managementbuyout
.
• Ateam out
sidemanagementcanpur
chaseabusinesswi
thf
unds
pr
ovidedbyaventur
ecapi
tal
ist–managementbuyin.
Advant
agesofVent
ureCapi
tal

• Thebusi
nessi
snotcommi
tt
edt
omeet
ingr
egul
ari
nter
estpayment
s.
• Theequi
tywi
ll
reducet
hegr
owt
hoft
hef
ir
m.
 • Theventur
ecapi
tal
istwi
llpr
ovi
demanagementadvi
cet
ost
rengt
hent
he
busi
ness.
Di
sadvant
agesofVent
ureCapi
tal

• I
tmeansgi
vingupashar
eofcont
rol
.
• I
tiscost
lyasvent
urecapi
tal
istwi
llbel
ooki
ngf
orhi
ghr
atesofr
etur
n.
ManagementandFi
nanci
alAccount
ing

ManagementAccount
ing

• Iti
sconcernedwithinternalr
eport
ingt
omanagersofanenter
pri
se.I
t
emphasizesthecontrolanddecisi
onmaki
ngrathert
hanthestewar
dshi
p
aspect
sofaccounting.
Themai
nfunct
ionsofmanagementaccount
ingar
e:

• Tocl
assi
fyandcal
cul
atecost
sofpr
oduct
ion.
• Topr
ovi
deest
imat
esoff
utur
eexpensesandr
evenue–budget
.
• Toi
dent
if
yinef
fi
cienci
esi
ntheor
gani
sat
ions.
• Tocont
rolcost
sandmanaget
hecash.
• Toseekoppor
tuni
ti
es.
Fi
nanci
alAccount
ing

• Iti
spar tofaccounti
ngthatisconcer
nedwithexter
nalreport
ingt
o
shareholders,gover
nmentreport
ingtoshar
eholder
s,governmentand
otherinter
estedparti
es.
• Managersactasst
ewar
dsoft
hef
inanci
alandphysi
calr
esour
ces
ent
rust
edtothem.
Di f
ferencesbet weenFinanci
alandManagementAccount ing
FinancialAccount ing ManagementAccount i
ng
Externalreporti
ng. Inter
nalreport
ing.
Thereisneedt ocompl ywi
ththe Thereisnoneedt ocomplywi t
h
regulati
onsorst andar ds. regulati
onsorstandards.
I
tr el
atestot hestewar dshi
poffinanci
al I ti
sf utur
eandpr esentori
ented.
resources.
I
tispast -r
elated. Iti
sf utur
eandpr esentori
ented.
Theyneedt obepubl ished. Theyar enotpubl i
shed.
I
tisamustt obepr oduced. Iti
spr oducedonr equest.
I
nvolvest hepr eparat
ionoff i
nal Invol
vepr epar
ationoftheinter
nal
account
s,f
orexampl
e,bal
ancesheet
s account
s,f
orexampl
e,budget
s

Cost
s

Pur
poseofCost
ing

• Tocal
cul
atet
hepr
ofi
tabi
li
tyofapar
ti
cul
arvent
ure.
• Topr
ovi
dei
nfor
mat
ionofpr
ici
ngdeci
sions.
• Tocont
rolexpendi
tur
e.
• Toappr
aiseal
ter
nat
ivecour
sesofact
ion.
Thr
eeTechni
quesofCost
ing

• Ful
landabsor
pti
oncost
ing.
• Mar
ginalcost
ing.
• St
andar
dcost
ing.
Br
eak-
EvenAnal
ysi
s

• Iti
sapr oducti
ontechniqueusedtodet
erminethemini
mum pr
oduct
ion
outputrequi
redinorderforthefi
rmtogener
ateadequat
eamountof
revenuetocoverthetotalcost
s.
• Theconceptai
mst oobt
aint
hepointatwhi
cht
otalcost
s(TC)ar
eequal
tot
otalr
evenue(TR)i
nproduct
ion.
• I
tisobt
ainedatapoi
ntwher
eTCcur
veandTRcr
osseachot
her
.
I
tisbasedont
hef
oll
owi
ngassumpt
ions:

• Al
lcost
sar
edi
videdi
ntof
ixedandvar
iabl
ecost
s.
• Fixedcost
swill
remai
nconstantatal
llevel
sofout
putwhi
lstvar
iabl
e
costswil
lvar
ypropor
ti
onat
ely.
• Uni
tvar
iabl
ecostwi
llr
emai
nconst
antatal
llevel
sofact
ivi
ty.
• Thef
act
oraf
fect
ingcostandr
evenuei
svol
ume.
• Technol
ogy,
product
ionmet
hodsandef
fi
ciencyr
emai
nunchanged.
• Ther
earenost
ockl
evelchangesandt
hest
ocksar
eval
uedatmar
ginal
cost
sonly.
• Asi
ngl
epr
oductorconst
antsal
esmi
x.
Di
agr
am
Mar
ginofSaf
ety

• I
tist
hedi
ff
erencebet
weenact
ivi
tyl
evelandt
hebr
eak-
evenpoi
nt.
• Itshowstheamountbywhichact
ual
act
ivi
tyf
all
shor
toft
heexpect
ed
acti
vit
ybefor
ealossisi
ncurr
ed.
Fi
xedCost

• Thesear
ecost
sthatdonotchangeasout
putchanges.
Var
iabl
eCost

• Thesear
ecost
swhi
chvar
ydi
rect
lywi
thout
put
.
Advant
agesofBr
eak-
EvenAnal
ysi
s

• I
thel
pst
oachi
eveat
argetpr
ofi
t.
• I
tshowst
hel
evelofout
putwher
epr
ofi
tsar
emaxi
mized.
• Hel
psfi
rmsinmakingpri
cingdeci
sions,
forexampl
e,t
oincr
easesal
es
vol
umeiti
snecessar
ytoreducepri
ces.
• Helpsf
irmstounder
standthebehaviorofcosts,
forexampl
e,asout
put
r
isesbeyondacert
ainpoi
nt,cost
srisedispropor
ti
onatel
y.
• I
tisadi
sti
nctandsi
mpl
ewayofcal
cul
ati
ngpr
ofi
t.
• I
thel
pst
hef
ir
mtoavoi
dlosses.

Wher
e:

-
Cont
ri
but
ionperUni
t=Sal
es–Var
iabl
eCost
s.

Di
sadvant
agesofBr
eak-
EvenAnal
ysi
s

• Fi
xedcost
sar
eli
kelytochangeatdiff
erentl
evelsofact
ivi
ty.Per
hapsi
t
woul
dbemoreaccurat
etorepresentf
ixedcostsasstepcosts.
• Neit
hervar
iabl
ecost
snorsal
esrevenuear
el i
kel
ytobel
inear
.Di
scount
s,
over
timepayment
scancontr
ibut
etonon-l
ineari
ty.
• I
tisdi
ff
icul
ttocal
cul
ate.
• Thebreak-evenpoi
ntassumesapr
iceconst
antf
unct
ionwhi
chi
snot
real
ist
ic.
• I
tmaybedi
ff
icul
ttocal
cul
ate.
 • TheBEPassumesapr
iceconst
antf
unct
ionwhi
chi
snotr
eal
ist
ic.
• Itmaybediff
icultt
odivideorseparatefixedcostsf
rom var
iabl
ecosts
becausesomecost stakecharacteri
sti
csoffixedandvari
ablecost
sat
thesametime,thatis,
semi-var
iablecosts.
Budget
ing

• Abudgeti
saquant
it
ati
veexpr
essi
onofapl
anf
oradef
inedper
iodof
t
ime.
• Iti
sanest
imat
ionoft
her
evenueandt
heexpensesoveraspeci
fi
ed
peri
odoft
ime.
• I
tist
hewayanor gani
zat
ionat
tempt
stoant
ici
pat
ethef
utur
eandseei
f
t
hefutur
eispl
annedfor.
• Itcanal
sobedefinedasafi
nanci
alorquant
it
ati
vest
atementpr
epar
ed
andapprovedpr
iortoadef
inedper
iodofti
me.
Budget
aryCont
rol

• Itr
efer
stohowwel lmanager
suti
li
zebudgetstomoni
torandcont
rol
costsandoper
ati
onsinagivenor
ganizat
ion.
• Itcanalsobedef
inedasasyst
em ofmanagementcont
roli
nwhi
ch
actuali
ncomeandspendi
ngarecontr
oll
ed.
• Iti
samanagementpr ocesst ohelpensurethatabudgetisachievedby
i
nstit
uti
ngasyst emati
cbudgetappr ovalprocessbycoordinat
ingthe
eff
ortsofal
linvolvedpart
iesandoper at
ionsandbyanalyzingvar i
ances
andprovidi
ngappr opr
iat
ef eedback.
Char
act
eri
sti
csofBudget
s

• Budget
sar
epr
epar
edandagr
eedi
nadvance.
• Theycoveraspeci
fi
cper
iodoft
ime.
• Theyareexpr
essedei
theri
nfi
nanci
alt
ermsori
nrealt
erms(
physi
cal
quant
it
ies)
.
• Theyrel
ateeit
hertoaf i
rm asawholeortoapar
toft
hef
ir
m suchas
fi
nance,
mar ket
ing,oroper
ationsdepar
tment
.
Usef
ulnessofBudget
s

Funct
ions/
Advant
agesofBudget
s

• I
tcanbeusedt
oassi
stt
hepl
anni
ng(
faci
li
tat
espl
anni
ng)
.
 • Itcanbeusedtocommuni
cat
epl
answi
thi
ntheor
gani
zat
ion(
aids
communicati
on).
• Itcanbeusedtocont
rolandeval
uat
ebusi
nessper
for
mance(
busi
ness
perfor
manceeval
uati
on).
• Budget
ingf
aci
li
tat
escoor
dinat
ionwi
thi
ntheor
gani
zat
ion(
coor
dinat
es
depar
tment
).
• Responsi
bil
it
iesmayalsobecl
ari
fi
edwhenusi
ngbudget
sther
eby
reduci
ngconfli
ctswi
thi
ntheor
ganizat
ion.
• Ef
fect
ivebudget
ingi
mprovest
hel
evelofcommuni
cat
ionatdi
ff
erent
l
evel
softheorgani
zat
ion.
• Budget
ingcanbeusedt
ocont
rolexpendi
tur
e.
• Scar
ceorl
imi
tedr
esour
cesar
eusedi
nthemostef
fi
cientandpr
ofi
tabl
e
way.
• For
cesmanager
stodobet
terf
orecast
ing.
• Budget
sfaci
li
tat
emanagementbyexcept
ionwi
thdevi
ati
onr
epor
tedand
i
nvesti
gat
ed.
• Budgeti
ngmaybeasour
ceofmot
ivat
ioni
fabot
tom-
upappr
oachi
s
used.
• Moreover,
middlemanagementmaybehi
ghl
ymot
ivat
edi
fgi
venf
reedom
wi
thinthebudget.
• Pr
omot
esf
orwar
dthi
nki
ng.
• Showsemployeesanoveral
lpi
ctur
eoft
hedi
rect
ionoft
heor
gani
zat
ion
whichcanmoti
vatest
aff
.
• Pr
ovi
deaf
ramewor
kfordel
egat
ion.
N.
B.:Mosti
mpor
tant
lybudget
sar
eanear
lywar
ningsyst
em.

Theyhighl
ightwher
einvest
igat
ionsandappr
opr
iat
ecor
rect
iveact
ionsar
e
necessar
y.

However,
thosebenef
it
sdonotcomepr
obl
em-
fr
ee,
butt
heyhavet
hei
r
l
imi
tat
ions.

Li
mit
ati
onsofBudget
s

• Budgeti
ngconsumest
imeandusesmor
eresour
cesandt
hismayhavea
negat
iveimpactt
oanorgani
zat
ion.
 • Theval
ueoft
hebudgetdependsont
hequal
it
yoft
hei
nfor
mat
iongi
ven
bymembers.
• Itmaybeasour ceofdemoti
vati
onwhenpar
ti
cipat
ioni
snotpartoft
he
processorifatop-
downapproachi
sbei
ngused.Thismayaf
fectthe
quali
tyofthebudget.
• Managementbecomesover
-dependentont
hebudgetandmaynegl
ect
t
heprocessofmanagement
.
• Pr
obl
emsmaybet
ransf
err
edf
rom oneyeart
oanot
her
.
• Manager
smayover
est
imat
ecost
s.
• I
nfl
ati
onandot
heruncer
tai
nti
esmaycausepr
obl
emsi
nthesyst
em.
• I
tisdi
ff
icul
ttor
econci
leper
sonalgoal
sandcor
por
ateobj
ect
ives.
• Dysfuncti
onaldeci
sionsmayari
seandt
hismayr
esul
tinconf
li
ctsand
af
fectsthequali
tyofthebudget
.
• Staf
fti
medevot edtobudgetscarryarealoppor
tuni
tycost
.Thi
si s
becauset
het i
mewor kersgivetobudgetsmeanstheyareavai
labl
eto
carr
youtotherresponsi
bil
it
ies.
• Er
ror
sandi
naccuraci
eswi
llal
waysr
emai
nsi
ncei
tisi
mpossi
blet
o
pr
edi
ctt
hef
uture.
• Majorext
ernaleventssuchasri
singenergypr
icesort
hegl
obal
r
ecessionmaydi st
ortthewhol
epr ocess.
• Budgetsinvol
veandaffectpeople,t
heymaycauseconf
li
cts.Ther
emay
bedif
ficul
tchoiceswherelimit
edfundsarespent
.Somedepartment
s
wit
htightbudgetscoul
df eelconst
rai
ned.
Def
ini
ti
onofTer
ms

Budget
arycontr
ol–Itisacomparisonofactualper
for
mancewi
tht
hebudget
t
othati
fnecessarycor
rect
iveact
ionistaken.

Costcent
re–I
tisasegmentoft
heor
gani
zat
ionwher
ecost
sar
eal
locat
ed.

Pl
an–I
tisadet
ail
edaccountoff
utur
eact
iont
obet
aken.

Profitcent
re–Iti
sthesegmentoft
heor
gani
zat
ionf
orwhi
chcost
sand
revenuearecal
cul
ated.

Variance–I
tist
hedevi
ati
onoft
heact
ual
resul
tsf
rom budget
edorst
andar
d
result
s.
Invest
mentcent
re–I ti
sasegmentoft
heorganizat
ionwher
ecost
s,r
evenue
andprofi
tsar
ecalcul
atedandi
nvest
mentdeci
sionsaremade.

TypesofBudget
s

1.Fi
xedBudget
/St
ati
cBudget

• Iti
sabudgetthatdoesnotchangeorf
lexwhensal
esorsomeot
her
acti
vit
iesdecr
easeori
ncrease.
• I
tisabudgett
hati
sconcer
nedorbasedonasi
ngl
elevelofact
ivi
ty.
• I
tispr
epar
edforafi
nanci
alyearwhi
chisnotsubj
ectt
ochangeeveni
f
t
herear
echangesi
nthemarketcondi
ti
ons.
• I
tismainlyusedwhentheeconomicenvi
ronmenti
sstabl
e.Thisalso
meansthatsuchfact
orsl
ikei
nfl
ati
on,pri
ces,
andgovernmentpoli
cies
wil
lchangemuch.
• Ther
eisnoneedt
ofl
ext
hebudget
.
Advant
agesofFi
xedBudget

• Keepcost
sdown.
• Measur
eper
for
manceoft
hebusi
ness.
• Sui
tabl
einst
abl
eenvi
ronment
.
• Easyt
opr
epar
e.
• Easyt
oimpl
ementandf
oll
ow.
Di
sadvant
agesofFi
xedBudget

• Lacksfl
exi
bil
it
y–i facompanyident
if
iesunder
per
for
mingar
eas,
itcan
al
locat
eaddit
ionalresour
ces.
• Di
ff
icul
ttousei
nhi
ghl
ydynami
cenvi
ronment
.
2.Fl
exi
bleBudget

• I
tisabudgett
hatadj
ust
sorf
lexesf
orchangei
nthevol
umeofact
ivi
ty.
• Itcal
cul
atesdi
ffer
entexpendi
tur
elevel
sforvar
iabl
ecost
sdependi
ng
uponactualr
evenuechanges.
Advant
agesofFi
xedBudget

• All
owsthebusi
nesst
oadaptt
hebudgett
ochangesi
nthebusi
ness
envi
ronment
.
 • I
tgi
vesadj
ust
ment
sforpr
edi
cti
ons.
• Thebusi
nessmayeasi
l
yadaptt
ochange.
Di
sadvant
agesofFi
xedBudget

• Requi
rescont
inuousmoni
tor
ing.Thi
sist
ime-
consumi
ng.
• Maysuf
ferf
rom i
naccur
ateadj
ust
ment
s.
• Requir
esrel
evanti
nfor
mat
ion.Thi
smeansi
tmaybeaf
fect
edbyl
ackof
i
nformati
on.
• Hi
ghl
ycompl
ex,
forexampl
e,cat
egor
ies’
cost
s.
I
ncr
ement
alBudget
s

• Thi
sisabudgetpr
eparedusi
ngapr
evi
ousper
iod’
sbudgetoract
ual
perf
ormanceasabasi
cwithi
ncr
ement
alamountaddedf
orthenew
budgetper
iod.
• Theall
ocat
ionofr
esour
cesi
sbaseduponal
locat
ionsf
rom pr
evi
ous
per
iods.
• Thisapproachi
snotrecommendedasi
tfai
lst
otakei
ntoaccount
changingcir
cumst
ances.
• Moreover
,itencour
agesspendi
nguptothebudgett
oensur
ea
r
easonableall
ocati
onint
henextbudget
.
• I
tusesaspend-
itorl
ose-
itment
ali
ty.
Advant
agesofI
ncr
ement
alBudget
s

• Assumeact
ivi
ti
esandmet
hodsofwor
kingwi
llcont
inuei
nthesameway.
• Noi
ncent
ivef
ordevel
opi
ngnewi
dea.
• Noi
ncent
ivet
oreducecost
s.
• Encouragesspendi
ngupt
othebudgetsot
hatt
hebudgeti
smai
ntai
ned
nextyear.
• Thebudgetmaybecomeout
-of
-dat
eandnol
ongerr
elat
etot
hel
evelof
act
ivi
tybei
ngcar
ri
edout.
• Thepr i
ori
tyf
orr
esour
cesmayhavechangedsi
ncet
hebudget
swer
eset
ori
ginal
ly.
• Theremaybebudgetar
yslackbui
lti
ntothebudgetwhichi
snever
revi
ewed.Manager
smighthaveoverest
imatedt
heirr
equir
ementsi
nthe
 pasti
nordertoobt
ainabudgetwhichi
seasi
ert
owor
ktoandwhi
ch
al
lowsthem t
oachievef
avor
ableresul
ts.
4.Zer
oBasedBudget
s

• Thesearebudget
sprepar
edont
hepri
nci
plet
hateachit
em i
ncl
udedin
thebudgetmustbej
usti
fi
edbyt
hebenef
it
swhichwil
laccr
uebefor
eiti
s
i
ncludedint
hebudget.
• Thesebudget
sst
artf
rom scr
atchandnotf
rom pr
evi
ousbudget
s.
• I
nvol
vespr
epar
ingabudgetf
rom scr
atchwi
thzer
obase.
• Itavoi
dsthedef
ect
sofper
pet
uat
ingpr
evi
ousi
nef
fect
iveandi
naccur
acy
ofoldbudget
s.
• Thef
igur
ecanbeadj
ust
edf
ori
nfl
ati
on.
Advant
agesofZer
oBasedBudget
s

• Accuracy–Thishel
psincost
sreduct
ionasi
tgi
vesani
dealpi
ctur
eof
cost
sagainstt
hedesir
edperf
ormance.
• Eff
ici
ency–Helpsineff
ici
ental
locati
onofresources(
depar
tmentwise)
asitdoesnotl
ookatthehi
stori
calnumbersbutlooksatt
heactual
number.
• Reducti
oninredundantacti
vit
ies–I tleadstot
heident
ifi
cat
ionof
opport
unit
iesandmor ecosteffect
ivewaysofdoingthingsbyremovi
ng
al
ltheunproduct
iveorredundantactivit
ies.
• Budgetinf
lat
ion–sinceever
yli
neofitem i
stobejusti
fi
ed,zerobased
budgeti
ngovercomestheweaknessesofincr
ementalbudgeti
ngof
budgetinf
lat
ion.
Shar
ehol
der
s’Rat
ios

• Thesear
eofpar
ti
cul
ari
nter
estt
opr
ospect
ivei
nvest
orsi
nabusi
ness.

• Theseenablei
nvest
orst
omakeanassessmentoft
her
etur
nont
hei
r
i
nvestments.

• Buyi
ngshar
esi
nacompanyhast
woki
ndsoff
inanci
alr
etur
n:

• Capi
talgai
ns–canbemadebyshar
epr
icer
isi
ng.

• Annualdi
vidends–paidbycompani
est
oshar
ehol
der
sunl
esspr
ofi
ts
ar
etooloworl ossesar
ebei
ngmade.
 • Shar
ehol
der
s’rati
osincl
udedivi
dendyi
eld,
divi
dendcover
,ear
ningsper
shar
eandpri
ce-earni
ngsrat
io.

a.Di
videndYi
eldRat
io

• Thismeasur
est
her
ateofr
etur
nashar
ehol
derget
satacur
rentshar
e
pri
ce.

• I
tiscal
cul
atedas:

Exampl
e1

Ordinar
y
No.of Divi
dend
Share Shar
ePri
ce Rat
io
Shares PerShare
Divi
dend
6A1 21000000 140000000 0.
15 1.50
140000
6A3 200000000 0.
7 10
000

• Sharehol
der
sin6A1areear
ningahi
gherr
etur
nont
hei
rinvest
mentt
han
3
i
ftheyhadboughtshar
esin6A.

• Potent
ialshar
eholder
smightbeat
tr
act
edt
obuyshar
esi
nacompany
wit
hahi gherdi
videndyi
eld.

b.Di
videndPerShar
e

• I
tshowst
hedi
videndsr
ecei
vedf
oreachshar
e.

• I
tiscal
cul
atedas:

• Ahighdi
videndyiel
dmaybesobecausesharepri
cehasrecent
lyf
all
en
duetost
ockmar ketconcer
nsaboutl
ongt
erm pr
ospect
softhecompany.

• Ift
hesharepricer
isesper
hapsduetoimprovedprospect
soft
he
business,
thenwit
hunchangeddi
vidends,
thedivi
dendyiel
dwi
llf
all
.

c.Di
videndCover

• Thi
sisthenumberoft
imest
heor
dinar
yshar
edi
videndcoul
dbepai
dout
ofcur
rentpr
ofi
ts.

• Thehighert her
ati
o,t
hemoreablei
sthecompanytopayi
tsproposed
divi
dends,leavi
ngaconsi
der
ablemargi
nofrei
nvest
ingpr
ofi
tsbackint
o
thebusiness.
 • I
tiscal
cul
atedas:

Exampl
e2

Prof
itaft
erTaxand
Di
vidends Rat
io
I
nterest
6A1 21000000 30000000
140000
6A3 400000000
000

• 6A3hasahi
gherdi
vi han6A1.
dendcovert

d.Pr
ice-
Ear
ningsRat
io

• Itpr
ovi
desameasur
eofpr
ofi
tabi
li
tyofshar
esi
nter
msofcapi
talval
ue
andearni
ngs.

• Ahigherr
ati
osuggestst
hatinvestor
sar
eexpect
inghi
gherearni
ngs
gr
owthinthefut
urecomparedwi t
hcompani
eswithal
owr at
io.

• Aresul
tof1wouldmeaninvest
orshavever
yli
tt
leconf
idencewi
tht
he
f
utureear
ningpoweroft
hecompany.

• I
tiscal
cul
atedas:

• Thi
sist
heamountofpr
ofi
tsear
nedpershar
e.

• Theresul
tshowshowmuchi
nvest
orsar
ewi
ll
ingt
opayf
oreach$1of
eani
ngs.

Capi
talSt
ruct
ureRat
ios

a.Gear
ingRat
io

• Themeasuresthedegr
eet
owhi
cht
hecapi
talofabusi
nessi
sfi
nanced
bydebtcapi
tal
.

• Itrepr
esentstheproport
ionoft
hecompany’
stot
alcapi
talt
hathaspr
ior
claimtoprofi
tsoverthoseofor
dinar
yshar
es.

• Itconcernst
hebalancebetweenf
ixedi
nter
estf
inanceandequi
tyf
inance
orbalancebetweenloanandshar
ecapit
al.
 • I
tiscal
cul
atedas:

or
,

• Fixedcostcapit
ali
ncludedebent
ures,
pref
erenceshar
es,
longt
erml
oans,
andanyot hercapi
talcar
ryi
ngarightt
oafixedret
urn.

• Tot
alcapitalincl
udeshareholder
s’equi
ty(or
dinar
yshares+allreserves)
andnon-currentl
iabi
li
ti
es(longtermloansandprefer
enceshares).

Measur
ementofGear
ing

LevelofCapit
alGear
ing Rati
o
Highl
ygeared Great
erthan50%
Neutral Equalto50%
Lowgear ed Lessthan50%

WaysofReduci
ng/
Impr
ovi
ngGear
ing

• I
ssui
ngnewor
dinar
yshar
es

• Redeemi
ngpr
efer
enceshar
esanddebent
ures

• Ret
aini
ngpr
ofi
ts

• Conver
ti
ngpr
efer
enceanddebent
ures

Howt
oIncr
easeGear
ing

• I
ssui
ngdebent
uresandpr
efer
enceshar
es

• Redeemi
ngor
dinar
yshar
es

Advant
agesofaHi
ghl
yGear
edCompany

• I
nter
estpayment
sar
etaxal
lowabl
e

• Debtf
inanceconf
ersnovot
ingr
ight
s

• Intermsofrai
singprof
it
sordinar
ysharesbenefi
ttr
emendouslyina
highl
ygearedcompanybecauseal lt
heprofi
tsr
emaini
ngafterpaying
debentur
esint
erestandpref
erencedivi
dendsbel
ongtoafewor dinar
y
shares.
 • Debentur
esandpref
erenceshar
esar echeaperthanor
dinar
yshares
becausether
etur
nisfi
xedanditreducesrealter
mswithinf
lat
ion.

• Iti
ncreasestheoppor
tuni
tyf
orshareholder
sast
heycani
ncr
easet
hei
r
stakesinthebusi
nessaswellascontr
ol.

• Ther
eisnodi
lut
ionofequi
ty.

Di
sadvant
agesofaHi
ghl
yGear
ingCompany

• Ther
eisgr
eat
ercommi
tmentt
opayi
ngi
nter
est
s.

• Chasesawaypot
ent
iali
nvest
ors.

• Managementmaynotbebor
rowi
ngt
oinvestorexpandt
hebusi
ness.

• Thehighert
hegearingthelowertheabil
it
yofthecompanyt opay
divi
dendsandearnretai
nedearni
ngsbecauset hef
irm wi
llbemore
commi t
tedt
ointer
estpayingfordif
fer
enttypesoff
ixedcostcapi
tal
.

Benef
it
sofbei
ngaLowl
yGear
edCompany

• Thi
sisasaf
erbusi
nessst
rat
egy.

• Ther
eisl
esscommi
tmentt
oint
erestpayment
s.

• Li
kelyt
oobtainloansfr
om banksf
orbanksf
earl
endi
ngt
ofi
rmst
hatar
e
al
readyhi
ghlyindebt.

Di
sadvant
agesofbei
ngLowl
yGear
ed

• Ther
eisdi
lut
ionofequi
tyl
ikel
y.

• Thedi
rect
orscoul
dbemi ssingsomepotent
ial
lypr
ofi
tabl
einvest
ment
oppor
tuni
ti
esbythei
rrel
uctancetoi
ncr
easedebts.

b.I
nter
estCover

• Thisshowshowmanyt
imesi
nter
estpayment
sar
ecover
edbyoper
ati
ng
profi
ts.

• I
tiscal
cul
atedas:

Advant
agesofRat
ioAnal
ysi
s
 • I
tismorei
nfor
mati
ve.Itshowsmor
ehiddeninf
ormat
iont
hant
he
f
igur
es/
numberswhichdonotshowanythi
ng.

• I
tcanbeusedi
nassessmentofcr
edi
tri
sks.

• Theycanbeusedaspr
edi
cti
onsofi
nsol
vency.

• I
tcanbeusedi
ntheeval
uat
ionoft
hecompany’
sper
for
mance.

• I
tcanbeusedf
oryeart
oyearcompar
isons.

• I
tcanbeusedasapoi
nterofar
easofweaknessesandst
rengt
hs.

• I
tmakesaccount
ingi
nfor
mat
ionmor
emeani
ngf
ul.

• Itmakesaccount
ingi
nfor
mati
oneasyt
ounder
stand(
int
erpr
etat
ionof
complexaccount
ingf
igur
es)
.

• Ithel
pstoli
nkt
hedif
fer
entaccounti
ngfi
gur
esinthefi
nanci
alstat
ement
s
anddeter
minethesi
gni
fi
cantrel
ati
onshi
pbetweensuchfi
gures.

• I
thel
pst
osummar
izedat
a.

Li
mit
ati
onsofRat
ioAnal
ysi
s

• Figur
esareaff
ect
edbyi
nfl
ati
onorexchanger
ates(
economi
c
envir
onment)
.

• Theyar esubj
ect
edt
obi
assi
ncet
hef
inanci
alst
atementcanbewi
ndow
dressed.

• Int
er-
fi
rm compar
isonscannotbedonesi
ncefi
rmsusedif
fer
ent
account
ingpol
ici
esandmet hodse.
g.st
ockeval
uat
ion(
FIFO,LI
FO)
.

• Resul
tsofr
ati
osdependont
hequal
it
yoff
inanci
alst
atement
s.

• Sever
alf
ormul
ascanbeusedf
oroner
ati
o.

• Eval
uati
onofacompanyi
sincl
usi
vei
fthecompanyhasbot
hposi
ti
ve
andnegati
ver
ati
os.

• I
nter
-i
ndustr
yandcross-count
rycompar
isonsmaybediffi
cul
tforlar
ge
f
ir
mswi t
hseveraldi
visi
onsfaci
ngdif
fer
entcostst
ruct
uresandlegal
f
rameworks.
Depr
eci
ati
on

• Iti
spartofthecostofanon-curr
entassetthatisconsumeddur ingthe
peri
oditisusedbythebusiness,f
orexampl e,amotorcarpurchasedfor
$10000maybewor thonly$8000oneyearl at
erbecauseitisnotas
goodasnewaf terayear
’suse.Theassetwoul dhavesuf f
ereda
depreci
ati
onof($10000-$8000) ,thati
s,$2000.

CausesofDepr
eci
ati
on

• Wear
ingout

• Consumpt
ion,
exhaust
ion

• Ef
fl
uxi
onoft
ime

• Obsol
escence

Met
hodsofCal
cul
ati
ngDi
ff
erent
iat
ion

1.St
rai
ghtLi
neMet
hod

• Af
ixedsum i
sdeduct
edperyearf
rom t
heval
ueoft
heasset
.

• Thetot
alamountofdepr
eciat
ionthatanassetwil
lsuf
feri
sesti
matedas
thedi
ff
erencebet
weenwhatitcostsandtheesti
matedamountthat
wouldberecei
vedwheniti
ssoldorscrappedattheendofit
susefull
if
e.

• Thetot
aldepr
eci
ati
oni
sthenspr
eadevenl
yovert
henumberofyear
sof
i
tsexpect
edli
fe.

• I
tiscal
cul
atedas:

Exampl
e

MashokoLtdpurchasesamachi necosting$80000.I
tsexpect
edusefulli
fei
s5
yearsandwil
lhavearesidualvalueof$10000.Cal
cul
atethedepr
eciati
onper
yearusi
ngthestrai
ghtl
inemet hod.

Sol
uti
on
Advant
agesofSt
rai
ghtLi
neMet
hod

• I
tiseasyt
ocal
cul
ate.

• I
tisconsi
stent
,si
ncet
hesameamounti
schar
geddai
ly.

Di
sadvant
agesofSt
rai
ghtLi
neMet
hod

• Iti
sunreal
ist
ict
oassumet
hatanassetdepr
eci
atesbyt
hesameamount
eachyear.

• Ther
eisnorecogni
ti
onoft herapi
dchangesi
ntechnol
ogywhi
cht
endt
o
makeexi
sti
ngassetsredundant.

• Ther epai
rsandmaintenancecost
sofasset
snor
mal
lyr
isewi
thageand
reduceprofi
tabi
li
tyofthefi
rm.

• I
tsaccur
acydependsver
ymuchuponest
imat
es.

2.Reduci
ngBal
anceMet
hod

• Itassumesthatanassetl
ossesahi
ghval
uewheni
tisnewt
hani
n
subsequentyear
s.

• I
tiscal
cul
atedf
rom t
henetbookval
ue(
cost–depr
eci
ati
on)
.

• I
tassumest
hatanassetdepr
eci
atesbyt
hesameper
cent
age.

Exampl
e

Amachi necost
s$20000.I
tisexpectedt
ohaveausefull
if
eof5year
s.
Depreci
ati
onistobecal
cul
atedattherat
eof25%perannum ont
hereduci
ng
bal
ance.

Calcul
ati
on 20000
Year1(25%×20000) (5000)
Netbookvalue 15000
Year2(25%×15000) (3750)
Netbookvalue 11250

Advant
agesofReduci
ngBal
anceMet
hod

• I
tismor
ereal
ist
ict
hant
hest
rai
ghtl
inemet
hod.
 • Depr
eci
ati
oni
sgr
eat
esti
near
lyyear
sbutr
educeswi
thasset
’susef
ull
if
e.

Di
sadvant
agesofReduci
ngBal
anceMet
hod

• I
tassumest
hatanassetdepreci
atesatt
hesamer
atedur
ingt
hei
rusef
ul
l
if
ewhichi
snotthecasealways.

• Ther
eisapr
obl
em ofcal
cul
ati
ngt
heper
cent
aget
oappl
y.

• I
tisal
sobasedonest
imat
eshencet
heaccur
acycanbecompr
omi
sed.

St
ockVal
uat
ion

TheI
mpor
tanceofVal
uingSt
ocki
nAccor
dancewi
thRecogni
zedPr
inci
ples

• Openi
ngandcl
osi
nginvent
ori
esareincl
udedint
hetradi
ngsect
orort
he
i
ncomestat
ementt
ocalcul
atecostofsal
esandgrossprof
it
.

• Cl
osi
ngst
ocki
sincl
udedasacur
rentasseti
nthebal
ance.

• St
ockscanei
therbeval
uedat
:

• Costpr
ice

• Ati
tssel
li
ngpr
ice

• Atwhati
tisconsi
der
edt
obewor
thy

TheBasi
sofSt
ockVal
uat
ion

• St
ockshoul
dbeval
uedatt
hel
owerofcost/netr
eal
izabl
eval
ue.

• Thevaluat
ionshoul
dbesucht
hati
tdoesnotr
ecogni
sepr
ofi
tsi
n
advance.

• Netr
eali
zabl
evalueconsi
stsoft
hesel
li
ngpr
icel
essexpensesnecessar
y
t
osellt
heproducts.

Met
hodsofVal
uingSt
ocks

1.Fi
rstI
nFi
rstOut(
FIFO)

• Themethodi
sbasedont heassumpti
onthatt
hestocksthathasbeen
pur
chased/producedf
ir
starethef
ir
sttobeissuedbef
orerecent
pur
chasesar
esold.
Ef
fect
sofFI
FOi
nTer
msofRi
singPr
ices

• I
tmaxi
mizest
heval
ueofst
ocks.

• I
tmaxi
mizest
hecostofsal
es.

• I
tmaxi
mizesgr
osspr
ofi
tandnetpr
ofi
t.

• I
tat
tr
act
shi
ght
axes.

Ef
fect
sofFI
FOi
nTi
mesofFal
li
ngPr
ices

• I
tmi
nimi
zest
heval
ueofcl
osi
ngst
ock.

• I
tmaxi
mizest
heval
ueofcostofsal
es.

• I
tmi
nimi
zespr
ofi
ts.

Advant
agesoft
heFI
FOMet
hod

• I
treducest
her
iskofobsol
escenceandexpi
rat
ion.

• I
tisr
ecogni
zedi
nter
nat
ional
lyf
orval
uingpr
ices.

• I
tisr
eal
ist
ic(
issuesar
emadei
ntheor
dert
heywer
erecei
ved)
.

• Val
uesar
ebasedont
hepr
icesact
ual
lypai
dfort
hegood.

• Val
uat
ioni
sbaseduponr
ecentpr
ices.

• I
tissi
mpl
etouse.

Di
sadvant
agesofFI
FO

• Ther
eisar
iskofunder
-pr
ici
ng.

• I
tat
tr
act
shi
ght
axesi
nti
mesofr
isi
ngpr
ices.

• I
dent
icali
temsar
echangeddi
ff
erent
ly.

2.LastI
nFi
rstOut

• Thi
smethodassumest
hatther
ecentpurchasesofgoods/
thelastones
tobepr
oducedaret
hef
irstt
obeissuedbeforeol
dstocksaresold.
 • Thismeansthattheval
ueofcl
osi
ngst
ockswi
llbebasedont
hecost
pri
ceofoldstocks.

Ef
fect
sofLI
FOi
nTi
mesofRi
singPr
ices

• I
tmi
nimi
zest
heval
ueofcl
osi
ngst
ock.

• I
tmaxi
mizest
heval
ueorcostofsal
es.

• I
tmi
nimi
zespr
ofi
t.

Advant
agesofLI
FO

• Val
ueofcl
osi
ngst
ocki
seasyt
ocal
cul
ate.

• I
tisbasedonpr
icespai
dtopur
chasest
ock.

• I
ssuedatt
hemostr
ecentpr
ice.

Di
sadvant
agesofLI
FO

• I
tisunr
eal
ist
icbecausei
tassumest
hatr
ecentst
ocki
sissuedf
ir
st.

• Cl
osi
ngst
ocki
snotval
uedatr
ecentpr
ices.

• I
dent
icali
temsissuedatdi
ffer
entpr
icesbecauset
heyar
edeemedt
obe
madefrom di
ff
erentbat
ches.

3.Aver
ageWei
ght
edCost(
AVCO)

• Underthi
smet
hod,
sal
es/
issuesar
emadeatt
heaver
agecostoruni
tsi
n
hand.

• Al
lcost
sisval
uedatasi
ngl
erepr
esent
ati
veaver
agecostcal
cul
atedas:

• I
trecogni
zest
hatal
lsuchi
temshaveanequalval
ue.

• Themet
hodproducesfi
gur
est
hatar
ecl
oset
oFI
FOhenceef
fect
sar
e
si
mil
art
othoseofFIFO.

Advant
agesofAVCO

• Pr
icesaver
agedout
,thusr
ecogni
zingt
hatal
lit
emsshoul
dbei
ncl
udedi
n
 t
hecal
cul
ati
on.

• Ithastheef
fectofsmoot
hingoutt
hecostofpr
oduct
ionandcostof
sales.

• Pr
ofi
tsofdi
ff
erentper
iodscanber
eal
ist
ical
lycompar
ed.

• TheuseofAVCOavoidstheinequal
it
yofi
dent
icali
temsbei
ngchar
gedt
o
di
ff
erentj
obsatdi
ff
erentpr
ices.

• Itr
ecognizest
hatident
icali
temspur
chasedatdi
ff
erentt
imesandpr
ices
haveidenti
cal
values.

• Averagedpri
cesusedt
oval
uecl
osi
ngst
ockmaybef
air
lycl
oset
othe
l
atestpri
ces.

Di
sadvant
agesofAVCO

• Theaver
agepr
icemustber
e-cal
cul
atedaf
terever
ypur
chaseofnew
st
ock.

• Theaver
agepr
icedoesnotr
epr
esentanypr
iceact
ual
lypai
dforst
ock.

Exampl
eofMet
hodsofSt
ockVal
uat
ion

Thetabl
ebel
owrelat
est
opur
chasesandsal
esmadebyJumol
tdwhi
chsel
ls
onl
yoneproduct
.

2004 Quanti
ty Uni
tCost Uni
tSel
li
ngPr
ice
Jan1 Bal
ance 5100 $25
Jan10 Uni
tsrecei
ved 1490 $22
Jan30 Uni
tsrecei
ved 3000 $40
Feb3 Uni
tsrecei
ved 2310 $30
Feb21 Uni
tsrecei
ved 4000 $44
March6 Uni
tsrecei
ved 3800 $32
March15 Uni
tsrecei
ved 700 $46
March26 Uni
tsrecei
ved 1090 $40
March30 Uni
tsrecei
ved 450 $48

Quest
ion

Cal
cul
atet
heval
ueofst
ockonMar
ch31basedon:

• FI
FO [
3]
 • LI
FO [
3]

• AVCO [
5]

1.FI
FO

Date Jan1 Jan10 Feb3 March6 March26

Pri
ce $25 $28 $30 $32 $40
Recei
ved
I
ssues 5100 1490 2310 3800 1000
Quanti
ty
Jan30 (3000)
2100
Feb21 (2100) (
1490) (410)
- - 1900
Mar
ch15 (700)
1200
Mar
ch30 (450)
450

Ther
efor
e,cl
osi
ngstock =(
750×$30)+(
3800×$32)+(
1000×$40)
=$184100

2.LI
FO

Balb/d
Dat
e Jan10 Feb3 Mar
ch6 Mar
ch26
Jan1
Pri
ce $25 $28 $30 $32 $40
Recei
ved
5100 1490 2310 3800 1000
Quant
ity
Jan30 I
ssued (1590) (
1490)
3590
Feb21 I
ssued (1690) (
2310)
1900 -
March15 I
ssued (700)
3100
Mar
ch30 (450)
550

Ther
efor
e,val
ueofcl
osi
ng =(
1900×$25)+(
3100×$32)+(
550×$40)
=168700

3.AVCO

No.of Average Total

Dat
e Recei
pts I
ssues
Uni
tsi
n Costper Cost
 St
ock Uni
t
2004Jan Bal
5100at$25 5100 $25 127500
1 b/d
1490at$28 6590 $25.
68 169220
3000at
3590 $25.
68 92180
$25.
68
2310at$30 5900 $27.
37 16148
4000at
1900 $27.
37 52500
$27.
37
3800at$32 5700 $30.
46 173600
700at
5000 $30.
46 152278
$30.
46
1000at$40 6000 $32.
05 192278
450at
5550 32.
05 177856
$32.
05

Ther
efor
e,val
ueofcl
osi
ngst
ock=$177856

TheSt
ockExchange

• Thi
sisanorgani
zedmarketwhichbri
ngst
oget
herbuyer
sandsel
ler
sof
cor
porat
eandgovernmentsecuri
ti
es.

• Iti
samar ketforbuyi
ngandsel
li
ngofshar
es,
stocksandot
hersecond
handsecurit
ies.

Funct
ionsoft
heSt
ockExchange

• I
tcont
rol
stheadmi
ssi
onofnewmember
.

• I
tset
tl
esdi
sput
esbet
weenmember
s.

• Ital
soest
abl
ishespr
icesofshar
esdependi
ngont
hel
evelofsuppl
yand
demand.

• I
tal
soeducat
esmember
soft
hepubl
iconi
nvest
mentofshar
es.

• Theydi
spl
aypr
icesofsecur
it
iesandshar
es.

• Itpr
otect
sinvest
orse.
g.byavoi
dingf
raudandest
abl
ishi
ngcodeof
conduct.

• Theycompensat
einvest
orswhomaybedef
raudedbysel
ler
s.

• Theyal
sol
istanddel
istcompani
esont
hest
ockexchange.
 • Appr
ovesshar
esofcompani
est
obeboughtandsol
d.

• Al
lowscompani
esandgover
nmentt
orai
sef
unds.

• Itpr
ovidesameansofval
uingcompaniesfortakeoversandmerger
s
becauseiti
sbasedonsharepr
ices.
Note:Acompanylist
edonthestockexchangeisrefer
redtoasaquoted
companyorlist
edcompany.

Bei
nglist
edonthestockexchangenormal
lyshowst
hatacompanyhas
mettheli
sti
ngr
equir
ement softheZ.
S.E.

• Itpr
ovidesareadyeval
uat
ionofthei
nvestorsmaki
ngi
teasyf
or
sharehol
der
swhowi shtodisposehi
s/hershar
es.

Advant
agesofQuot
ati
onorLi
sti
ng

• Quot
edsharesarereadi
lymar
ketabl
eandacceptabl
ewhent
heyar
e
gi
venaconsider
ati
oninmerger
sandt akeover
s.

• Quot
ationmaygi
vecompaniesasuperi
orposi
ti
onandt
hismaybe
i
mportantt
ocustomerswhowanttoknowthefi
nal
newresour
cesand
t
radi
ngpatter
nsofthecompany.

• Themar
keti
tsel
fplacesahigherval
uat
iononquot
edcompani
esandt
his
maybeanadvantagetosharehol
der
s.

• Theuseofstockexchangeasasourceofnewper
manentcapi
talmaybe
moreatt
ract
ivethanbankfi
nancewhichmaybewithdr
awnint
heevent
ofsever
ecredi
tsqueezed.

Di
sadvant
ages

• Sharehol
der
swhohavecontr
olofthecompanyoft
enfeart
hata
quotat
ionwi
llbet
othei
rdi
sadvant
ageassharesaref
reel
ytransf
erabl
e
whichcandil
utet
hei
rcont
rol
.

• Thecompanyisalsovulner
ablet
oatakeoverbid.Thi
sisduet
oafree
tr
ansact
ionofshareswhichcanl
eadtoanotherfir
m buyi
ngmoret
han
50%oftheshares.

• Goi
ngpubli
ccanbeexpensivebecausei
trequi
resdraf
ti
ngofthe
pr
ospect
us,pr
esspubl
ici
ty,
theuseofunderwri
tersandaudi
tors.
Fi
nanci
alMar
ket
s

• Thesear
emar
ket
swher
efi
nanci
ali
nst
rument
sar
etr
aded.

• Theycanbedi
videi
nto:

• Capi
talmar
ket
s.

• Moneymar
ket
s.

• Thesear
emar
ket
susedt
orai
sef
inance.

1.Capi
talMar
ket
s

• Iti
sacoll
ecti
onofint
err
elat
edmar ket
sinwhicht
hosewhoseekmedi
um
andlong-
ter
mf i
nancearebroughti
ntocont
actwi
ththosewhowi
shto
provi
deit
.

• Thismarketcoordi
natesthefor
cesofdemandandsuppl
yonmar
ket
for
cesforlong-
term suppl
y.

• Fi
nancialmarket
sinst
it
uti
onst
hatmakeupthecapi
talmar
ketsactas
i
ntermediar
iesandchannel
sonsavi
ngsofcompani
esandindi
vidual
borr
owers.

Mai
nInst
it
uti
onsi
ntheCapi
talMar
ket
s

• Commer
cialbanks

• Mer
chantbanks

• Fi
nancehouses

Rol
eorFunct
ionsoft
heCapi
talMar
ket
s

• Adynamicandvi
brantcapit
almar
ketcont
ri
but
eforspeedandeconomi
c
gr
owthanddevel
opment .

• Itmobil
izesf
undsfr
om peopl
eforf
urt
heri
nvest
menti
nthepr
oduct
ive
channel
softheeconomy.

• I
tcanbeusedincapi
talf
ormati
onmeaningthati
tist
henetaddi
ti
ont
o
t
heexi
sti
ngstockofcapi
tali
ntheeconomy.
 • Provisi
onofi nvestmentavenues,t
hatis,thecapitalmarketrai
ses
resourcesforlargerper
iodsoftime,thusitprovi
desani nvestment
avenuef orpeoplewhowi shtoinvestresourcesforalongper i
odofti
me.

• Itspeedsupeconomicgrowthanddevelopment,
thati
s,enhances
producti
onandproducti
vit
yinthenat
ionoreconomyasi tmakesfunds
avail
ableforl
ongperi
odsoftime.

• Ital
sohel
psincreasepr
oducti
vit
yintheeconomybygener
ati
ng
employmentandinfr
ast
ruct
uraldevel
opment.

• I
tal
sohel
psi
npr
operal
locat
ionofr
esour
ces.

• I
tof
fersconsul
tantser
vicesmeani
ngt
hati
tgui
desandadvi
se
i
ndi
vidual
sonbusiness.

• Cont
inuousavailabi
li
tyoff
unds,thati
s,buyersandsel
ler
scaneasi
lybuy
andsellsecur
it
iesasstockastheyarecontinuousl
yavai
labl
e.

2.MoneyMar
ket
s

• Thi
sisamar
ketf
orshor
t-
ter
mfi
nance.

• Thesear
emarketsthatt
radesecur
it
iesori
nst
rument
swi
thmat
uri
ti
esof
l
essthanoneyear
.

• Itconsi
stsofor
gani
sat
ionsl
ikebanks,
discounthousesandf
inance
houses.

• Theyar
econsi
der
edt
obehi
ghl
yli
qui
dandconsi
der
edext
raor
dinar
yand
saf
e.

• Thesepl
ayerswhi
charefoundatt
hemoneymar
ketbor
rowandl
end
moneyforshor
tper
iodsofti
me.

• Thisenabl
esmoneytobeinvest
edandmoneydef
ici
tscanbef
unded
thatmatur
einl
essthanoneyear.

• Theyof
ferl
owr
etur
nst
hanmostot
hersecur
it
ies.

• Inst
rumentsandsecur i
ti
esoffer
edort r
adedincl
udetreasur
ybil
ls,
commer ci
alpaper,Negoti
abl
eCer t
if
icatesofDeposi
ts(NCDs),
and
BankersAcceptances(BAs).
 • Excesscanal
sobei
nvest
edi
nmoneymar
ketsecur
it
ies.

• Secur
it
iest
radedar
eli
qui
d,t
hati
s,canbeeasi
lyconver
tedi
ntocash.

Wor
ldBank

• Theaim oft
heWorldBanki
stofi
ghtpr
oper
lybypr
ovi
dingl
oansand
advi
cetothedevel
opi
ngnat
ions.

I
nter
nat
ionalMonet
aryFund

• Theor
gani
sat
ionr
egul
atesi
nter
nat
ionalf
inanci
alcycl
e.

• I
twasf
ormedt
opr
omot
e:

• I
nter
nat
ionalmonet
arycooper
ati
on.

• Exchanger
atest
abi
l
ity.

• Or
der
lyexchangear
rangement
.

• Tof
ost
ereconomi
cgr
owt
h.

• I
nter
nat
ionalt
rade.

• Fi
nanci
alassi
stancet
ocount
ri
eswi
thB.
O.P.def
ici
enci
est
empor
ari
ly.

Gener
alFunct
ionsoft
heFi
nanci
alMar
ket
s

• Theyall
owborrowersandlenderstoi
nter
actandper
mitt
ransf
eroff
inds
fr
om excessuni
tstodefi
cituni
ts.

• Theyhelpi
npricedet
ermi
nati
on.Theypr
ovidevehi
clesbywhi
chpr
ices
aresetbot
hforneworexi
sti
ngstockoff
inanci
alassets.

• Theyal
lowforinfor
mati
onaggr egati
onandcoordi
nati
on.Theyactas
aggr
egator
sandcol l
ect
orsofinformati
onaboutfi
nanci
alassetval
ues
andfl
owoff undsfr
om l
enderst oborr
owers.

• Ri
skshar
ing.Theyall
owtr
ansferofr
iskfr
om thosewhounder
take
i
nvest
mentstothosewhoprovi
deforthei
nvestment.

• Li
quidi
ty.I
tprovi
deshol
der
soff
inanci
alasset
swi
thachancet
oresal
e
orl
iqui
datetheasset
s.
 • Ef
fi
ciency.Theyr
educet
ransact
ionalcost
s.

TheFi
nanci
alMar
ket
sWor
kBestwhen:

• I
nvest
orsar
eful
lyi
nfor
med.

• Mar
ket
sar
efr
eeoff
raudandmani
pul
ati
on.

• Ther
eisnothr
eatoffai
lur
eofonefinanci
ali
nst
itut
ionmayl
eadt
ofai
lur
e
ofot
hersandpossi
blycol
lapsei
ntheorgani
sat
ion.

• Ther
eisnobr
eakdownofmanagementcont
rolatt
hecompany.

TheRol
eoft
heGover
nmenti
nFi
nanci
alMar
ket
s

Thegover
nmenti
nter
venesi
nfi
nanci
almar
ket
sfort
hef
oll
owi
ng:

• I
nfor
mati
on.I
nanunr
egul
atedmarketi
nvestor
shavenoenough
i
nfor
mati
ontogui
det
hei
rinvest
mentswhichshoul
dnotbebasedon
r
umors.

• Governmentenf
orcesbet
terr
ulest
oimpr
ovet
heef
fi
ciencyoff
inanci
al
markets.

• Topr
eventt
hegai
nsofcheat
ing.

• Toavoi
dthecont
agi
onef
fectwer
eri
skt
akenbyonef
ir
m canhar
m ot
her
fi
rms.

• Tofi
ghtagai
nstf
raudonmar
ketpr
iceswhi
chdi
scour
agei
nvest
orsand
har
mt heent
ir
eeconomy.

• Sot
hatt
hecompanycanf
ull
ydi
scl
osei
nfor
mat
iont
othei
nvest
ors.

Pr
imar
yMar
ket
sandSecondar
yMar
ket
s

• Focusundercapi
talmar
ket
s.

Pr
imar
yMar
ket
s

• Mar
ket
swher
efi
rsthandi
nst
rument
sar
esol
dandt
raded.

• I
nst
rument
str
adedf
ort
hef
ir
stt
ime.
Secondar
yMar
ket
s

• Mar
ket
swher
esecondhandi
nst
rument
sar
etr
adedorsol
de.
g.auct
ions.

• I
nst
rument
sar
etr
adedf
ort
hesecondt
ime.

I
MPACTOFI
CTONFI
NANCEANDACCOUNTI
NG

• ICTcansigni
ficant
lyr
educeaccount i
ngcost
s.Redundantt
askscanbe
centr
ali
zedinonelocat
ionthroughtheuseofinf
ormati
ontechnol
ogy
i
nfrast
ruct
ure.Economicef
ficienci
escanbereal
izedbymigrat
inghi
gh-
 costfuncti
onsintoanonl i
neenvir
onment.Businessescanalsooffer
emailsupportforcust omersthatmayhaveal owercostthanalive
customersuppor tcall
.Costsavingscoul
dal sobefoundthrough
outsourci
ngoppor tuniti
es,r
emoteworkoptionsandl ower-
cost
communi cati
onopt ions.

• Thepresenceofcomputers,
pri
nter
s,scanner
s,faxesorotheri
nnovat
ive
equipmenti
nfinanceandaccounti
ngoffi
ceseli
minatesthebori
ng,
tedi
ousanddiffi
cul
t-
to-
handleuseofmanualdocument sandfi
li
ng
syst
ems.

• Accounti
ngsoftwar eisnowusedtor ecordandprocessaccount
ing
tr
ansact
ionswi t
hinfuncti
onalmodulessuchasaccount spayabl
e,
account
sr ecei
vable,payr
oll
,andtr
ialbalanceaspartoft
heaccounti
ng
i
nformati
onsyst em.This(si
mple)accountingsof
twarecanbeacquired
onli
ne.

• Infor
mat iont echnol
ogyisusedwi del
yinaccount ingsecur i
ty.Theuseof
i
dent i
fi
cat i
onsandpasswor dspr ovi
deast rongcont rolinaccessing
confidentialinfor
mationaboutt heenti
ty.Insteadofbi ndersandpaper s
l
yingar ound, securi
tyisgreatl
yenhancedwi ththepr opercomput er
programs.Usi ngaprogram, accounti
ngi nformationcanbeencr yptedi
n
awayt opr eventunauthor
izeduse, makingi tquit
esaf e.Forinstance,a
l
ost ,
stolenormi spl
acedlaptopordeskt opcomput ercanbet racked
usingthesecur it
ysoftwar
eacqui redbyt hebusiness.

• TheI nt
ernetpr ovi
desvastsour cesofi nf
ormationthatcanbeusedby
businessesint heaccount ingar ea.Throughthis,document scanbe
shared,researchcanbeconduct edandtaxesinsomecount r
iescanbe
fi
ledonline.ThePoi nt-of
-Sale(POS)syst em iscommonl yusedbymal l
s
anddepar tmentst or
es.I nter
nethel psinthepaymentpr ocedureof
customer sthroughr eal-
timeconnect i
onoftheircreditcardtotheir
respecti
vebanks.Theuseofbar codeshelpsinimpr ovi
ngt hesales
transact
iont i
meandaut omat icallyupdati
ngoft heinventoryrecords.

• Webhost ingoff-sit
eor‘ thecl oud’
ist helatesttrendwithaccounting
appl
ications.Inst eadofi nstalli
ngapr ogr am ontothebusinesscomputer
andsavi ngdat at here,thepr ogram residesonaser veri
nadi f
ferent
l
ocation.Thi scloudt echnologyalsousest heinter
nettoconnectand
savetheiri nf
ormat ionordocument sonl i
ne.Thi scanalsobereferredt
o
as“wor kinginthecl oud”.Int hi
sway, businessescansavemoneyi n
 softwar eandhar dwarepurchasesbyjustsigningupwi thacloud
servicespr oviderandusei tsprogr
amsandspacet osavedata.Thr ough
thi
s,t hereisnoneedt ogetabiggerhard-dr
iveorwor r
yaboutpr ogram
versions.Theot heradvantageofthecloudisthatyouhaveaccesst o
youri nformationf r
om anywhere.Thisnewcl oudtechnol ogyi
sal so
associ atedwi t
ht heimprovedsecurit
yofaccount i
ngi nformat
ion.
Inf
ormat ionisnotopent oallneti
zens,t
headmi ni
strat
orcanrest ri
ct
accesst otheinformation.

Chapt
er11

QUESTI
ONS:I
NFORMATI
ONFORDECI
SIONMAKI
NG

• Eval
uat
eanyfourmeasur
esofcont
rolt
endency.
[
20]

• Usingasetofnumer
icalval
uesexpl
aint
hemeani
ngoft
hef
oll
owi
ng
ter
ms:
a.Mean
[
3]

b.Medi
an
[
3]

c.Mode
[3]

d.Range
[
3]

• Howusefuli
sthemeanandt
hemodei
nmaki
ngst
ockhol
dingdeci
sions?
[
8]

• Eval
uatethedif
ferentmet
hodst
hatcanbeusedbyaf
ir
mint
he
manufactur
ing
sect
orfordatapresent
ati
on.
[25]

• Usingi l
lustr
ati
ons,eval
uat
etheusef
ulnessofusi
ngdeci
siont
ree
di
agr am asa
decisionmaki ngtool
.
[25]
 • I
ndeci
siont
reeswhatdoesasquar
eandaci
rcl
est
andf
or?
[2]

• Expl
aint
hemeani
ngofbl
endi
ngt
echni
quei
nli
nearpr
ogr
ammi
ng.
[
6]

• Ofwhati
mport
ancei
sli
nearpr
ogr
ammi
ngt
oaf
ir
mint
hemanuf
act
uri
ng
sect
or?[
10]

• Eval
uat
etherel
evanceofcostbenef
itanal
ysi
stoamanuf
act
uri
ngf
ir
m.
[
10]

• Expl
ainanytwot
ypesofdeci
sionsmadebymanager
s.
[4]

• I
ll
ust
rat
eadeci
siont
reedi
agr
am.
[
3]

• Expl
ainhowadeci
siont
reedi
agr
am i
sdr
awn.
[6]

I
nfor
mat
ionTechnol
ogy

• Eval
uatetheusef
ulnessoft
echnol
ogi
cali
mpr
ovementt
oacar
manufactur
ing
sect
or.
[25]

• Howusefuli
stheuseofI
Tinor
gani
sat
ions?
[
25]

• Defi
nethefoll
owi
ngt
erms:
a.Automati
on
[
2]

b.Manuf
act
uri
ngt
echnol
ogy
[
2]

c.Of
fi
cetechnol
ogy
[
2]
 I
NFORMATI
ONFORDECI
SIONMAKI
NG

• Thissecti
onemphasizesonthemainsourcesofcol
lect
ingand
present
ingst
ati
sti
caldataf
requent
lyusedinbusi
ness.

• Theuseofsi
mpl
edeci
sionmaki
ngandpl
anni
ngt
echni
quesi
sal
so
emphasi
zed.

Pr
esent
ati
onofI
nfor
mat
ion

• Aft
erdat
ahasbeencol
lect
ed,itneedst
obepr esentedinafor
mthat
communicat
est
heinf
ormationandenablesconclusionst
obedrawn.

• Ast hepurposeofthedat
aistoaidindeci
sionmakingandt
orepor
tback
theresult
s(tofaci
li
tat
econt
rol
)iti
snecessaryt
ochooseawayof
presenti
ngdatathatiscl
ear
,accur
ateandappropr
iate.

Met
hodsofPr
esent
ingDat
a

1.Tabl
es

• Thisi
swhendat
aiseit
hersummari
sedi
ncolumnarf
orm ori
nrows
dependi
ngont
hefor
mr equi
redbyt
heuser
.

• Poi
ntst
onot
ewhenset
ti
ngoutat
abl
eofdat
a:

• Numbereacht
abl
eforeaseofr
efer
ence.

• Gi
vei
tashor
tdescr
ipt
ivename.

• Nameeachcolumn(thati
s,ver
ti
call
istofnumber
s)andnameeach
r
ow(hori
zont
alli
stofnumbers).

• Gener
all
yavoi
ddeci
mal poi
ntswhendeal
ingwit
hpeopl
ebecause
t
heygiveafal
sei
mpressionofgr
eatpr
eci
sion.
 • Gi
vet
hesour
ceofdat
aforeaseofr
efer
ence.

Exampl
eofTabul
atedDat
a

WonderManuf
act
urer
sLt
d.

Tabl
e1:NumberofUni
tsAssembl
edbyEachof25Newl
y-Tr
ainedOper
ator
s

21 35 61 79 20
21 39 30 80 70
22 40 22 60 100
23 50 23 50 90
20 90 70 100 20

Sour
ce:25I
ndi
vidualWor
ksheet
s

Appl
icabi
li
ty

• Mostusef
ulwhen:

• Wi
der
angeofr
esul
tsneedt
ober
ecor
ded.

• Theresult
sneedt
obeanal
yzedbyst
atist
icalmeansandi
tis
essent
ialt
ohavet
henumberst
hemselves.

• I
tisgener
all
ymor eaccur
atet
otaker
esul
tsf
orm at
abl
ethant
o
i
nter
pretagraphorachart
.

• Thereisalotoft
exttoi
ncl
udewi
tht
her
esul
ts,
suchasdet
ail
ed
headingf
oreachcolumn.

• I
tbacksvi
sual
impactofgr
aphsandchar
ts.

Advant
agesofTabl
es

• Faci
li
tat
est
hepr
esent
ati
onofl
argequant
it
yofst
ati
sti
caldat
a.

• Theysavespaceandti
meofhavingtorewr
iteinfor
mationt
hati
s
commonf ormanyfi
gurese.
g.t
hoseitemsthataccruedatt
hesamet
ime
e.
g.samedayoftheweekcanbegr oupedt
oget her
.

• I
tbacksvi
suali
mpactofgr
aphsandchar
ts.

• Theyr
etai
ntheor
igi
nal
i
tyoft
hedat
a.
Di
sadvant
agesofTabl
es

• Theyl
ackvi
suali
mpactofgr
aphi
calpr
esent
ati
on.

2.Li
neGr
aphs

• I
tisf
ormedbyj
oini
ngt
hecoor
dinat
est
oget
her
.

• I
tismost
lyusedt
oshowchangesi
navar
iabl
eovert
ime.

• Iti
sacont
inuousli
nejoi
ninganumberofpoi
ntswhi
chr
efl
ectt
he
changi
ngr
elati
onshi
pbetweentwovari
abl
es.

• Not
e:Thegr
aphshoul
d:

• Becl
ear
lyl
abel
ed.

• Haveadescr
ipt
ivet
it
le.

• Haveasour
ce.

• Haveascal
e.

• Havewhati
sont
hex-
axi
sandy-
axi
s.

Exampl
e

Advant
agesofLi
neGr
aphs
 • Sui
tabl
eforcl
earpr
esent
ati
onofr
api
dlychangi
ngf
igur
es.

• Usedt
oshowchangesovert
ime(
trends)
.

• I
tcanbeusedt
omakecompar
isonsbet
weent
wof
ir
msorvar
iabl
es.

Di
sadvant
agesofLi
neGr
aphs

• Theydonotr
etai
ndat
aor
igi
nal
it
yasi
tisconver
tedi
ntol
inesonagr
aph.

• I
tneedsf
urt
hermat
hemat
icalcal
cul
ati
onst
ogi
veacl
eari
mpr
essi
on.

3.BarChar
ts

• Thoseusebandsofequalwi
dthbutvar
yingl
engt
hsorhei
ght
sto
repr
esentr
elat
iveval
ues.

• Thebar
scanei
therbever
ti
calorhor
izont
al.

• Abarchar
thasspacesbet
weent
hebar
.

Di
agr
am

NumberofNewBor
nBabi
esEachYear

Advant
agesofBarChar
ts
 • Theyhel
psummar
izedat
a.

• Usef
ulwhenmaki
ngcompar
isons.

• Theycanbepresent
edi
nanumberofways,
thati
s,mul
ti
plebar
sor
componentbar
s.

Di
sadvant
agesofBarChar
ts

• Theymaybedi
ff
icul
ttoconst
ruct
.

• Theydonotr
etai
ndat
aor
igi
nal
it
yasi
tisconver
tedi
ntobar
s.

• Di
ff
icul
ttousewi
thoutakeyandanexpl
anat
ion.

4.Pi
eChar
ts

• Usedt
odispl
aydat
at hatneedtobepresent
edi
nsuchawayt
hatt
he
pr
oper
ti
esofthet
otalareclear
lyshown.

• Iti
scir
clet
hatisdi
videdi
ntosect
ionswi
theachsect
ionr
epr
esent
inga
propor
ti
onofthewholedata.

Exampl
eofaPi
eChar
t

WageBi
llPai
dtoDi
ff
erentEmpl
oyeesofaCompany
 Sour
ce:HRofJamal
Hot
el

Advant
agesofPi
eChar
ts

• Theyar
eeasyt
oint
erpr
et.

• Theycanshowef
fect
ivevar
iat
ions.

• Theyhavet
hevi
suali
mpactt
hant
abl
es.

Di
sadvant
agesofPi
eChar
ts

• Theyrequi
remat
hemati
calcalcul
ati
ont
odet
ermi
net
hesi
zeofeach
sect
ionift
heyar
etobeaccurate.

5.Hi
stogr
am

• Thisisal
soknownastheblockdi
agr
am becauseitconsi
stsofcol
umns
thatt
oucheachot
her.Thebarsar
econt
inuous;t
herearenospaces
betweenthem.

Di
agr
am
Advant
agesofHi
stogr
ams

• Thesecanbeusedtovisual
lypr
esentfr
equencydat
awhent
her
angeof
datahasbeenbr
okenintocl
assranges.

Di
sadvant
agesofHi
stogr
ams

• Itcanbedi f
fi
cul
ttocal
cul
ateandconst
ructsi
ncei
tinvol
vescal
cul
ati
on
offrequencydensi
ti
es.

6.Pi
ctogr
ams

• Thi
sist
heuseofpi
ctur
est
orepr
esentdat
a.

Exampl
e

2009Popul
ati
on

Key =1000000peopl
e

Advant
agesofPi
ctogr
ams

• Thevi
suali
mpacti
sst
rong.

• Usef
ulwhent
heuserwant
stoat
tr
actt
her
eader
.
Di
sadvant
agesofPi
ctogr
ams

• Onl
ysi
mpl
eandl
imi
teddat
acanbeshown.

Deci
sionTr
eesAnal
ysi
s

• Itisadecisionmaki ngtoolwhichinvol
vesassessmentofgi
ven
decisionsrelat
ivel
yt oal
ter
nati
vesavailabl
ethr
oughtheuseoftr
ee
diagramstosel ectthebestpossibl
edecisi
on.

Deci
sionTr
ee

• I
tisanai
dtodeci
sionmaki
ngi
ncondi
ti
onsofuncer
tai
nty.

• I
tconsi
der
sal
lopt
ionsavai
labl
eandmakeuseofpr
obabi
li
ti
es.

Exampl
esofTypesofDeci
sionst
hatar
eMadeusi
ngDeci
sionTr
ee

• Whet
herornott
oint
roduceanewpr
oductorcont
inuewi
tht
heexi
sti
ng
pr
oduct
.

• Whet
hert
olaunchanewadver
ti
singcampai
gn.

• Whethert
osellof
fassetsf
oraknownpr
iceorcont
inuet
ouset
hem i
n
condi
ti
onsofuncert
aint
y.

• Whet
herornott
oexpandi
nonenat
ionoranot
her
.

Howt
oConst
ructaDeci
sionTr
eeDi
agr
am

Feat
ures:

• Squar
es

• Thi
sist
hest
art
ingpoi
ntofadeci
siont
reedi
agr
am.

• I
trepr
esent
spoi
ntsatwhi
chmanagementdeci
sionhavet
obemade.

• Theyar
eknownasnodes.

• Br
anches

• Eachbr
anchoft
het
reer
epr
esent
sanopt
ione.
g.whet
hert
oopenor
cl
oseashop.
 • Theyshowalsoarangeofconsequencesorout
comeandt
he
chancesoft
hem occur
ri
ng.

• Ci
rcl
es

• I
tshowst
hatar
angeofout
comesmayr
esul
tfr
om adeci
sion.

• I
trepr
esent
spoi
ntsatwhi
choneofanumberofout
comesmayoccur
.

• Bl
ackdot

• Showst
hef
ini
shi
ngpoi
ntoft
hesequenceofevent
s.

Exampl
eofaDeci
sionTr
ee(
Whet
hert
oOpenaFact
oryorNot
)

• Adecisi
onismadewhet hert
oopenornott
oopen.Theni
fweopen,we
havedif
fer
entoutcomesdependi
ngonthest
ateoft
heeconomy,
thati
s,
boom andrecessi
on.

• Todecideonwhichdecisi
ontotake,i
nthi
scasewhethert
oopent he
fact
oryornoti
tisnecessar
ytocalcul
atet
heexpect
edvalueateachnode.

Expect
edVal
ue

• Thi
sisequal
tot
heout
comemul
ti
pli
edbyi
tspr
obabi
li
ty.

• Therulei
syoumult
ipl
yhor
izont
all
yal
ongeachl
ine,
andt
henaddupt
he
resul
ti
ngval
ues.

Payof
f
 • Thi
sist
heexpect
ednetcashi
nfl
owsf
rom t
hepr
oject
.

Exampl
e

Af i
rm wishestoopenanewf actoryandconsi dersthest at
eoftheeconomy.A
decisi
onnott oopenthefact
orygivesazeror eturn.Ifthefi
rm deci
dest oopen
thefactory,i
naboom itwil
lhaveanout comeofapr ofitof$5000000andt her
e
i
sonl ya0. 3probabi
li
tyofaboom.I ft
hereisar ecessionopeningaf actor
ywill
l
eadt oal ossof$1000000.I ti
sest i
matedthatt hereisa0.7probabili
tyofa
recessi
on.

• Representt
heinf
ormati
ononatreedi
agr
am anddeci
dewhet
hert
hef
ir
m
shouldopenthef
actor
yornotandwhy.

Sol
uti
on

Open

• Expect
edval
ue

Boom = $5m ×0.

3 = $1500000
Recessi
on = -
$1m ×0.7= (700000)
$800000

NotOpen =$0×1=$0

• Theexpect
edval
ueoftheret
urnonopeni
ngi
s$800000whi
chexceeds
ther
etur
nofnotopeni
ng.

• Ther
ecommendat
ioni
sther
efor
etoopen.
Exampl
e2

Acompanyhast woproject
sAandB.Thei
nit
ialoutl
ayf
orAi
s$180000andf
or
Bi
tis$150000.Thefoll
owingi
nfor
mati
oni
savailabl
e:

Pr
oject St
ateofdemand
High Low
A 200000 150000
B 300000 150000

Probabi
li
ty
A 0.
6 0.
4
B 0.
7 0.
3

• Repr
esentt
heabovei
nfor
mat
iononadeci
sionmaki
ngt
reedi
agr
am.

• Whi
chpr
ojectshoul
dthecompanychoose?Just
if
y.

Sol
uti
on

Expect
edMonet
aryVal
uef
orA =(0.
6×200000)+(
0.4×150000)
=120000+60000
=$180000

Ther
efor
e,payof
f =$180000–$180000
=$0

Expect
edMonet
aryVal
uef
orB =(0.
7×300000)+(
0.3×150000)
=21000+45000
=$255000

Ther
efor
e,payof
f =255000–150000
=$105000

Not
e:Payof
f=Expect
edCashI
nfl
ows–I
nit
ialCapi
talOut
lay

•
 • Thecompanyshoul
dchooseproj
ectBbecausei
thast
hehi
gherpayof
f
of$105000ascompar
edtoproj
ectA.

Advant
ages/
Usef
ulnessoft
heDeci
sionTr
eeDi
agr
ams

• Itr
educestheri
skofprojectf
ail
ure.Deci
siontr
eeshelpinthe
assessmentofri
sksassociat
edwi t
hunder t
aki
ngaprojecti
nacert
ain
envir
onment.Onl
yprojectswit
hthehighestoutcomesareconsi
der
ed.

• Itactsasaquickscr
eeni
ngdevicewhichisimpor
tanti
nchoosi
ngvi
abl
e
project
swhichprovi
debet
terr
eturnoninvest
ment.

• Theypresentamor el
ogi
calwayandr easonabl
ewayofselect
ing
proj
ect
s.Itsi
mplif
iesandmakesiteasytoselectt
hebestproj
ectfr
om a
numberofalter
nati
vesavai
labl
e.

• Decisi
ontreesaremostsuit
ablewhendeal
ingwithlar
geinvest
mentse.
g.
whendealingwithproj
ect
swhichrequi
realotofcapit
ali
nvestment
sli
ke
purchasi
ngaf act
oryorbui
ldi
ng.

• Thedecisi
ont echni
quei
squi
temotivat
ional.Thi
sisbecausei
ta
col
lect
iveprocessinwhi
chworker
spartici
pateandareconsul
ted.

• Ithel
psineffi
ciental
locati
onofr
esourceswherebymoreresourceswil
l
bechanneledtoapr ojectwit
hal
owr i
skoffai
lurethusr
educingcostsi
n
anorganisat
ion.
 • Ithelpsint
imi
ngoftheint
roducti
onofthepr
ojectbyassessi
ngthestat
e
oftheeconomy.Decisi
ontreesprovi
deacl
ueast owhentointr
oducea
project
.

• Newi
deasar
ethr
ownup.

• Theyencour
agemanager
stoquant
if
yal
ter
nat
ivecour
sesofact
ion.

Li
mit
ati
onsofDeci
sionTr
eeDi
agr
ams

• Theconst
ruct
ionofdeci
siont
reesi
sti
meconsumi
ng.

• I
nfor
mat
ioni
snotal
waysavai
labl
ee.
g.t
hecashf
lowest
imat
es.

• I
tincr
easest
hecost
stot
hebusi
nessassoci
atedwi
thdat
acol
lect
ionand
l
abour.

• Itf
ocusesmoreonquant
it
ati
vef
act
orst
her
ebynegl
ect
ingnon-
quant
itat
ivef
act
ors.

• Pr
obabi
li
ti
esmayl
eadt
obi
asedi
nfor
mat
ion.

• Thecal
cul
ati
onsar
ebasedonest
imat
esandt
heymi
ghtnotbeaccur
ate.

Measur
esofCent
ralTendency

• Thesesummar
izet
heat
tr
ibut
esoft
hemi
ddl
edat
aset
.

• Themostcommonl
yusedmeasur
esar
emode,
mean,
medi
an,
var
iance
andt
herange.

• Cent
ralt
endencyi
stheaver
agescor
efr
om acl
assofvar
iabl
es.

i
.Ar
it
hmet
icMean(
Aver
age)

• I
tist
hesum ofagr
oupofi
temsdi
videdbyt
henumberoft
hei
tems.

• I
tiscal
cul
atedas:;

• Wher
e=t
otal
oft
heval
ues,

• andn=numberoft
hevar
iabl
es.

Advant
agesofMean
 • I
tiswi
del
yusedf
orcompar
isons.

• Ther
eisonl
yonemeanf
oranydat
asetsoi
tmaynotbeconf
usi
ng.

• I
tist
ocal
cul
ateandunder
stand.

• I
tmakesuseofal
lthedat
aint
hegr
oup.

• Itcanbedeter
minedevenwhennot
hingi
sknownot
hert
hant
hequant
it
y
ofitemsandthenumberoft
hem.

Di
sadvant
agesoft
heMean

• I
tmaynotr
epr
esentanyel
ementi
nthegi
vendat
aset
.

• I
tisaf
fect
edbyout
li
ers.

• Byi
ncl
udi
ngal
lthei
temsofagr
oupi
tcompr
omi
sesi
tsaccur
acy.

• Theresul
tmaynotbeawhol
enumberwhi
chmi
ghtbedi
ff
icul
ttowor
k
wit
h.

Exampl
eofMean

Cal
cul
atet
hemean,
givent
hef
oll
owi
ngsetofdat
a:

5 6 7 8 10
2113146 7

Mean

2.Medi
an

• I
tist
heval
uet
hati
sfoundatt
hemi
ddl
eoft
hedat
a.

• I
tist
heval
uet
hatspl
it
sanar
rangeddat
aint
otwogr
oups.

• Inordert
ocal
cul
atet
hemedi
an,
thedat
aisar
rangedi
nascendi
ngor
descendi
ngor
der.

• Theposi
ti
onoft
hemedi
ancanbef
oundbywher
eni
sthet
otalnumber
ofi
tems.

Exampl
e
Gi
ven 2 4 6 8 1012141618,
findt
hemedi
an.

t
erm.

5t
hit
em

=10

Exampl
e2

Gi
ven 1 5 7 101112,
cal
cul
atet
hemedi
an

t
erm

t
hter
m

=3,
5tht
erm.

Not
e:Addt
het
hir
dandf
our
tht
ermt
hendi
videbyt
wot
othemedi
an.

=8.
5

Usesoft
heMedi
an

• I
tcouldbeusedi
nwagerecogni
ti
one.
g.hal
fhouruni
onmember
sear
n
l
essthan$XXXperweek.

• Of
tenusedi
nadver
ti
singe.
g.therel
iabi
li
tyr
ecor
dsshowthatour
pr
oduct
sareal
waysinthebestperf
orming50%ofal
lthebr
ands.

Advant
agesofMedi
an

• Iti
seasytounderst
and,si
mplydivi
dingadist
ri
but
ioni
ntot
woequal
part
sandtherebyconveyi
ngthei
nf or
mati
onthatt
hesamepropor
ti
onof
i
temsliesaboveorbelowthemedianval
ue.

• Ext
remei
temsdonotaf
fecti
tsval
ue.

• I
tgener
all
yrepr
esent
edbyanact
ual
item (
unl
iket
hemean)
.

• Iti
spossi
bletowor
koutt
hemedianeveni
ftheval
ueofal
lit
emsar
enot
known.Aslongast
hemiddl
eit
emsareknown.

Di
sadvant
agesofMedi
an
 • I
tisusual
lynotr
epr
esent
ati
vei
fwor
kedoutwi
thonl
yaf
ewi
tems.

• I
fthedistr
ibut
ioni
sir
regul
ar,
theact
uall
ocat
ionoft
hemedi
anmaybe
i
ndefi
nite.

• I
tissomet
imest
imeconsumi
ngt
oar
ranget
hedat
ainnecessar
yar
ray.

• I
tisnotpossi
blet
ousethemedi
antodeterminethetotalvalueofal
lthe
i
temse.g.numberofi
tems×medianwi
llnotgivethetotaldata.

3.Mode

• I
tist
heval
uet
hatappear
smostf
requent
lyi
nadat
aset
.

• Unl
iket
hemedi
anandthemean,
adeci
sionmakercanhavemor
ethan
onemodei
nagivendat
aset
.

Exampl
e

Gi
ven 1 125 126 7 129 1 121211
Mode =12(
thati
soccur
s5t
imes)

Usesoft
heMode

• Resul
tscoul
dbeusedf
orst
ockorder
ingpur
posese.
g.numberofshoe
si
ze12shouldbeor
der
edmostl
y.

Advant
agesofMode

• I
tissi
mpl
etounder
stand.

• Ext
remei
temsdonotaf
fectt
heval
ueoft
hemode.

• I
tcanbewor
kedouteveni
fonl
ythemi
ddl
eit
emsar
eknown.

• Repr
esent
edasat
ypi
calval
ue.

• I
tisj
ustobser
ved.

Di
sadvant
agesofMode

• Anor
gani
sat
ioncanfi
nditdi
ff
icul
ttomakedeci
sionsi
nsi
tuat
ionswher
e
t
her
earemorethanonemodalvari
abl
es.
 • I
tcannotr
epr
esentt
hewhol
eel
ement
sint
hegi
vendat
aset
.

• Exactl
ocat
ionsmaybeuncer
tai
n.

• Thear
rangementofdat
aist
imeconsumi
ng.

Range

• I
tist
hedi
ff
erencebet
weent
hehi
ghestandl
owesti
nasetofdat
a.

Exampl
e

I
fthedai
lyout
putvar
iesf
rom 210000t
o220000.Fi
ndt
her
ange.

Range=220000–210000
=10000

Advant
agesofRange

• I
tiseasyt
ocal
cul
ate.

• Notaf
fect
edbyout
li
ers.

• Easyt
ounder
stand.

Di
sadvant
agesofRange

• Itonl
ytakesint
oaccounttwoext
remes.Bot
hextr
emesmaybever
y
untypi
cal
,thusdist
ort
ingt
hepict
ureoft
heextr
emevari
ati
on.

• Leavesoutot
herr
elevanti
nfor
mat
ion.

CostBenef
itAnal
ysi
s

• Whenbusinessesareunder
taki
ngpr
oject
s,t
heyneedt
owei
ghcost
s
agai
nstbenefi
tstowar
dsthecommunity.

• Costbenefi
tanalysi
sisacol
lect
ionoft
echniqueswhichat
tempttofi
nd
anobject
ivetomeasuretheuti
li
tyofaproposalbasedonarangeof
peopl
e’svaluesandcommonmoneyscal e.

• Forexample,
abusinessappl
yingf
orper
missi
ont
obui
ldaf
act
orymi
ght
arguefort
hefol
lowi
ngbenefi
ts:
 • Empl
oymentcr
eat
ion.

• Boost
ingl
ocalaut
hor
it
ies’
revenuest
hrought
axpayment
s.

• I
mpr
ovi
ngt
heappear
anceoft
hel
andscape.

• Thel
ocal
smi
ghtbeconcer
nedwi
tht
hef
oll
owi
ngcost
s:

• Congest
edr
oads.

• Pol
lut
ion.

• Eval
uat
ionofset
tl
ers.

• Thesemustbeputi
ntomonet
aryter
msandeval
uat
edi
nor
dert
oreacha
desi
redandappr
opr
iat
edeci
sion.

• Wit
hcostbenefi
tanal
ysi
s,soci
alcosts,
pri
vat
ecost
s,pr
ivat
ebenef
it
s
andsoci
albenef
it
smustbeconsidered.

Soci
alCost
s

• Thesear
ecost
sincur
redbyt
hewhol
esoci
ety.

• Thi
sist
heext
ernalcost
spl
uspr
ivat
ecost
s.

Ext
ernalCost
s

• Thesear
ecostsi
ncurr
edbythef
irm whichaff
ectthet
hir
dpar
ti
es,
thati
s,
peopl
enotdi
rect
lyi
nvolvedi
nmaki
ngt hedeci
sion.

• Ext
ernal
cost
sofabusi
nessi
ncl
ude:

• Envi
ronmentalf
act
orssuchaspol
lut
ionf
rom smoke,
noi
seand
chemical
s.

• Spoi
li
ngoft
heenvi
ronment
.

• Gl
obalwar
ming.

• Damagef
rom t
raf
fi
c.

• Endanger
ingspeci
esofwi
ldl
if
e.

Ext
ernalBenef
it
s
 • Thesearebenef
it
sthatar
eenj
oyedbyt
hesoci
etyasar
esul
toft
hef
ir
m’s
act
ivi
ti
es.

• Exampl
esi
ncl
ude:

• Empl
oymentoppor
tuni
ti
es.

• Economi
cregener
ati
on.

• Tr
aini
ngofl
ocalwor
ker
s.

• I
mpr
ovedl
ivi
ngst
andar
ds.

Pr
ivat
eCost
s

• Thesearecost
st othefi
rm orcompanyresponsi
blefort
hedeci
sion
whichisusual
lyref
lect
edintheproduct
ioncostofthebusi
nessand
ther
eforei
tspr
ice.

Pr
ocedur
eforCostBenef
itAnal
ysi
s

• I
dent
if
yingal
lcost
sandbenef
it
sconnect
edwi
thanact
ivi
ty.

• Put
ti
ngaf
inanci
alval
ueont
hecost
sandbenef
it
s.

• Compar
ingt
het
otalcostwi
tht
het
otalbenef
it
s.

• Fi
nal
i
zeadeci
sion.

Advant
agesofCostBenef
itAnal
ysi
s

• Itt
akesint
oaccountqual
it
ati
vefact
ors,t
hati
s,f
actorsli
kepol
lut
ion,
unemployment
,landdamage,l
ivi
ngstandar
dsaregivenamonetary
val
ue.

• Ithel
psinplanni
ng.Giventhecost
sandbenefi
tsofapr
oject
,
managementcanpl anonhowt omini
misecostsori
ncr
easebenef
it
s
befor
elaunchingtheproj
ect.

• I
tactsasascr eeni
ngdevi
ceofproj
ect
s.Prof
it
ableproj
ect
shavemor e
t
otalbenef
it
sthancosts.Whendeal
ingwithmorethanonepr
oject,one
wit
hthehighestdif
fer
encebet
weentotal
benefi
tsandcostsi
sselected.

• I
tdet
ermi
nest
hewor
thyofcar
ryi
ngoutcer
tai
npr
oject
s,t
hati
s,f
ir
mswi
ll
 knowt
hel
ikel
ynetbenef
it
soft
hei
rpr
oject
.

• Itconsiderset
hicali
ssuessi
ncei
tconsi
der
sext
ernalbenef
it
sandcost
s
ofprojects.

Di
sadvant
agesofCostBenef
itAnal
ysi
s

• Somef
act
orsar
edi
ff
icul
ttoexpr
essi
nmoneyt
erms.

• I
tisbasedonest
imat
edmonet
aryval
ueshencer
esul
tsmaybebi
ased.

• Theprocessi
sti
meconsumi
ngasi
tinvol
vesadeeperanal
ysi
soncost
s
andbenefi
ts.

• I
tisanassumpt
ionwhi
chmaynotber
elevant
.

• I
tismor
equant
it
ati
veandi
gnor
esqual
it
ati
vei
nfor
mat
ion.

Li
nearPr
ogr
ammi
ng

• Iti
satechni
quewhichshowspr act
icalpr
obl
emsasaseriesof
mathemati
calequat
ionswhichcanthenbemanipul
atedt
of i
ndthe
opti
mum orbestsol
ution.

• Iti
susedtodetermi
nehowtoproducet
hehighestout
put,
from agiven
setofmachinesandequi
pment
,taki
ngi
ntoaccountanyconstr
aint
ssuch
asproduct
ionti
me.

• I
tcanbedefi
nedasamathemat
icalt
echni
quewhi chcanbeemployedby
managementt
odeter
minet
heopti
malutil
isat
ionofli
mit
edresour
ces.

Exampl
esofsi
tuat
ionswher
eLi
nearPr
ogr
ammi
ngcanbeUsed

• Themanufact
urerwantstoadoptaproducti
onscheduleandan
i
nventor
ypoli
cythatwi
llsat
isf
ydemandi nthefutur
eperiods.I
deal
ly,
the
schedul
eandpoli
cywil
lenablethecompanyt osati
sfydemandandat
thesameti
memi nimi
sethetotalpr
oducti
oncostsofinventor
y.

• Amar ket
ingmanagerwantstodet erminehowbesttoal
locat
eafixed
adver
tisi
ngbudgetamongalternativeadver
tmediae.
g.r
adio,TV,
newspapers.Themanagerwoul dwantt odeter
minet
hemediamixt hat
maximizestheadver
ti
singef
ficiencies.
Techni
quesofLi
nearPr
ogr
ammi
ng

• Bl
endi
ngt
echni
que

• Ext
rapol
ati
ont
echni
que

Bl
endi
ngTechni
que

Thisisagraphicalapproacht
olinearprogr
ammi
ngwhi
chdeal
swi
thr
esour
ce
al
locati
onsubjecttogiveconstr
aints.

Advant
agesofLi
nearPr
ogr
ammi
ng

• I
thelpsinattr
acti
ngtheopt
imum useofproduct
iveresources.I
tdoes
t
hatbyindicati
nghowadecisionmakercanempl oyhisproduct
ive
f
actorseff
ecti
velybysel
ect
inganddist
ri
buti
ngther esour
ces.

• Iti
mprovest
hequalit
yofdeci
sions.Thedeci
sionmakingapproachofthe
useroft
hist
echniquebecomesmor eobj
ecti
veandlesssubject
ive.I
t
eli
minat
esguesswork.

• Itpr
ovidespossi
bleandpract
icalsol
uti
onssincether
emi ghtbeot
her
constr
aint
soperati
ngoutsi
dethepossiblepr
oblem whichmustbetaken
i
ntoaccount.

• Ithel
psi
nhi
ghli
ghti
ngbot
tl
enecksinwhichmachinesmaynotmeet
demandwhi
leother
smayremainidl
eforsometime.

• Ithel
psinthere-
eval
uati
onofabasicplanforchangi
ngcondi
ti
ons.I
fthe
condit
ionshavechangedwhentheplanni
ngispartl
yimpl
ementedto
workattheremaini
ngpartoft
heplan.

• Helpscal
culat
etheamountofr
esour
cesneededt
opr
oduceacer
tai
n
quanti
tyofeachpr
oduct
.

• I
thel
psmi
nimi
secost
sandmaxi
mizepr
ofi
ts.

Di
sadvant
agesofLi
nearPr
ogr
ammi
ng

• Itt
reatsallrelat
ionshipsamongdeci sionvariabl
esaslinear
,however,in
generalneithertheobj ect
ivefunct
ionsnortheconstraint
sinrealli
fe
sit
uati
onsconcer ningbusinessesandi ndi
vidualpr
oblemsarelinearl
y
rel
atedtot hevar i
ables.
 • Whil
esol
vingonL. P.model
,ther
eisnoguar
anteethatwegeti
nteger
val
uesol
utions.Thesesol
uti
onsmightmakesense.

• Itdoesnottakeintoaccountt
heeffectoft
imeanduncert
aint
yand
theref
ore,
theL.P.modelshouldbedef i
nedinsuchawaythatany
changeduet ointer
nalaswellasexter
nalfact
orscanbei
ncorpor
ated.

• Parameter
sappeari
nginthemodelareassumedt obeconst
antbutin
reall
if
esit
uat
ions,
thesearef
requent
lynei
therknownnorconstant
s.

• L.
P.deal
sonlywithasi
ngl
eobj
ecti
vewher
easr
eall
if
esi
tuat
ionsmay
pr
esentconf
li
cti
ngmult
ipl
eobj
ect
ives.

I
NFORMATI
ONTECHNOLOGY

Informationtechnologyi
sacol lecti
veter
mf orvar
ioustechnologi
esinvolvedi
n
thecollecti
on,stor
age,processi
nganddi sseminat
ionofinfor
mat i
onby
electr
onicmeans.Forexampl e,
itincl
udestheuseofcomput ers,t
elephones,
transacti
onmachi nes,f
axmachi nes.

Advant
agesofI
nfor
mat
ionTechnol
ogy
 • I
mpr
ovedaccur
acyofi
nfor
mat
ion.

• I
ncr
easedspeedofdat
apr
ocessi
ng.

• Easi
eraccesst
oinf
ormat
ionr
esul
ti
ngi
nbet
terdeci
sionmaki
ng.

• I
ncr
easedvol
umeofi
nfor
mat
ion.

• I
ncr
easedpr
oduct
ivi
ty.

• I
tfr
eesupt
hewor
kfor
cet
ounder
takewor
krequi
ri
ngski
llandj
udgment
.

• Gr
eat
erconsi
stency.

Di
sadvant
agesofI
nfor
mat
ionTechnol
ogy

• Ther
ear
ecost
sofi
nst
all
ingandr
unni
ngt
heequi
pment
.

• Costoft
rai
ningst
aff
.

• Redundancycost
sincur
redi
fanyst
affar
ebei
ngr
epl
acedbyt
echnol
ogy.

• Theproblem ofsecur
it
y,conf
ident
ial
it
yandcompl
iancewi
tht
hedat
a
prot
ecti
onact .

• Possi
blest
affr
esi
stance.

• Heal
thpr
obl
ems,
forexampl
e,computersarenotgoodf
ort
heeyesand
t
heVDUcanbeharmfult
ounbornbabies.

Comput
ers

• Allcomputer
shavetwomainpar
ts–hardwar
e(physi
calcomponent
s)
andsoftware(t
heprogr
ammingi
nst
ruct
ionst
hatmakethephysi
cal
componentwor k)
.

Har
dwar
econsi
stsoft
hef
oll
owi
ng

• I
nputDevi
ces–Usedtogetdat
aint
othecomput
ere.
g.t
hekeyboar
d,
mouseandscanner
.

• Cent
ralPr
ocessingUni
t–Thisisthebr
ainofthecomput
er.I
thast
he
abi
li
tyt
ofetch,
decodeandexecut
einst
ruct
ions.
 • Back-
UpDat
aSt
orage–Theyst
oredat
awhent
hepoweri
stur
nedof
f.

• OutputDevi
ces–Maketheprocesseddat
aavai
labl
etot
heusere.
g.t
he
pr
interandt
hevi
sual
displ
ayunit.

Sof
twar
econsi
stsof
:

• Operat
ingSystems–Thesof twar
ethatcont
rolstheal
locat
ionand
usageofhardwaresuchasmemor y,
CPUt i
me,diskspaceandperi
pher
al
devi
ces.Thi
sisthefoundat
iononwhichappli
cati
onsarebuilt
.

• Appli
cati
onsSoftwar
e–Ar eprogr
amsdesignedtoassi
stthe
per
formanceofspeci
fi
ctaskssuchaswordprocessi
ng,spreadsheet
s
anddatabases.

• Themai
nappl
icat
ionsar
ethef
oll
owi
ng:

• WordPr
ocessi
ng–Al l
owyout okeyintextandsol
vei
t.Changescan
bemadetot
hetextanditcanbepri
ntedout.

• Database–All
owyoutostor
einf
ormati
oninrecor
df or
mat.The
i
nformati
oncanbesaved,
amended,sor
tedandsearched.

• SpreadsheetAppl
icat
ion–All
owyoutoent
erdataintoagridand
savetheinfor
mati
on.Youcanper
for
m numeri
calcalcul
ati
ons.

• Comput
erAr
t–Al
lowyout
odr
awshapesandusepat
ter
ns.

• StockContr
olAppli
cati
ons–Allowyoutosetupstockcontr
ol
systemsandenteri
nfor
mati
onaboutstockheldandsaveit
.Youcan
amendtheinfor
mationandpr
intoutst
ockli
stsandsummar yrepor
ts.

• Contr
olTechnol
ogy–Al l
owsyoutousetechnol
ogytocontr
ol
devi
ces,suchasrobot
sandscr
eentur
tl
est oper
for
mt asks.

Comput
ersandManuf
act
uri
ng

Comput
ersar
eusedi
n:

• Desi
gni
ngpr
oduct
s.

• Themanuf
act
uri
ngpr
ocess.

• Pr
oduct
ionpl
anni
ng.
 • Moni
tor
ingandcont
rol
.

Comput
er-
AidedDesi
gn(
CAD)

• Thisappl
icat
ionallowsthedesignertoproducetwoandthr
ee
dimensi
onaldesignsonacomput erscr
eenwher et
heycanbequi
ckl
y
andeasil
ymodi f
ied.Itcanbeusedt osti
mulateper
for
mancetoobvi
ate
theneedtoconstructaprotot
ype.

Advant
agesI
ncl
ude:

• I
tsavest
imei
ndesi
gni
ng.

• I
tiseasyt
omodi
fydesi
gns.

• Dr
awi
ngscanber
otat
edt
ovi
ewt
hedesi
gnf
rom di
ff
erentper
spect
ives.

• I
tispossi
blet
ocal
cul
atef
inanci
alst
ressaspar
toft
hedesi
gnpr
ocess.

• I
tleadst
oenhancedqual
it
yandconsi
stency.

Comput
er-
AidedManuf
act
uri
ng(
CAM)

• Thisi
nvolvest
heuseofcomputer
sinavar i
etyofmanuf
act
uri
ngt
asks
beyondtheuseofr
obotsontheproduct
ionli
ne.

Comput
erI
ntegr
atedManuf
act
uri
ng(
CIM)

• Takesastagefur
ther
,withtheuseofcomputer
stocoordi
nat
eever
y
aspectofpr
oduct
ionfrom desi
gn,t
hroughst
ockcont
roltopr
oduct
ion
schedul
ingandcontr
ol.I
tinvol
ves:

• C.
A.D.

• Flexi
blemanufactur
ingsystemsorhighlyaut
omatedmanuf
actur
ing
systemsthatarecomput ercont
rol
ledandcapabl
eofpr
oduci
nga
familyofpr
oductsinaflexibl
emanner.

• Robots(
art
if
ici
aldevi
cesabl
etoper
for
mfunct
ionsor
dinar
il
ycar
ri
ed
outbyhumanbeings)
.

• Numeri
call
ycont
rol
ledmachi
nest
hatr
espondt
opr
ogr
ammed
i
nst
ruct
ions.
TheBenef
it
sofComput
erI
ntegr
atedManuf
act
uri
ngar
e:

• I
ncr
easedpr
oduct
ivi
ty.

• Reduct
ioni
nwai
ti
ngt
imes.

• Gr
eat
erconsi
stency.

• Gr
eat
erf
lexi
bil
it
y.

• I
mpr
ovedcoor
dinat
ionofal
lfact
oryoper
ati
ons.

• Di
rectandf
lexi
blecont
rolofmachi
net
ool
s.

• Economiesi
noperat
ionbyvi
rt
ueofcont
inuoususeofequi
pmentandt
he
avoi
danceofbot
tl
enecks.

TheI
nter
net

• Itist
heworl
dwidecomputernetwor
kthatcar
ri
est
heWor
ldWi
deWeb,
elect
roni
cmailandot
herservi
ces.

• Thewebisalar
gecoll
ect
ionofi
nfor
mat
ionst
oredonawor
ldwi
de
net
workofcomput
ers.

Oppor
tuni
ti
esoft
heI
nter
neti
nBusi
ness

• Adver
ti
singt
hef
ir
m’spr
oduct
s.

• Sel
li
nggoodsandser
vices.

• Del
iveryofser
vices,
suchasadi
stance-
basedt
rai
ningcour
seor
el
ectroni
cnewspapers.

• Recr
uit
mentofempl
oyees,
byadver
ti
singvacanci
es.

• Communi
cat
ioni
nthef
orm ofe-
mai
l.

• I
nfor
mat
iondi
ssemi
nat
iont
ocust
omer
s,suppl
ier
sandt
hepubl
ic.

Benef
it
sofUsi
ngt
heI
nter
net

• Pr
ovi
descheapandef
fi
cientl
ong-
dist
ancecommuni
cat
ion.

• Of
fer
sunl
imi
tedpot
ent
ialf
orper
sonalnet
wor
king.
 • Of
fer
sapl
atf
ormf
orbusi
nesst
ransact
ions.

• Haswor
ldwi
depot
ent
ialf
ormar
ket
ing.

• Opensupwor
ldwi
desour
cesofi
nfor
mat
ion.

• I
sdemocr
ati
candopen.

Di
sadvant
agesofUsi
ngt
heI
nter
net

• Itst
il
lmainl
ycar
ri
esi
nfor
mat
iont
hator
gani
sat
ionsgi
veawayf
reeof
charge.

• I
tincl
udesi
ncompl
ete,
tri
vialandi
ll
egali
nfor
mat
ion.

• I
tcanbesl
ow,
bot
htoconnectandt
ouse.

• I
tcanpr
oducei
nfor
mat
ionover
load.

• Empl
oyeescanwast
eval
uabl
eti
mesur
fi
ngt
henet
.

• Secur
it
yandt
rustar
enecessar
y.

Aut
omat
ion/
Appl
icat
ionTechnol
ogy

• Pr
ocesswherebyafir
m engagesint
heuseoft
echnol
ogi
cal
lyadvanced
machi
ner
ies,
processesandequipment
.

Manuf
act
uri
ngTechnol
ogy

• Thi
sref
erstotoolsusedi
ntheconver
sionofr
awmat
eri
alsi
ntof
ini
shed
andsemi-
fi
nishedgoods.

Of
fi
ceTechnol
ogy

• Thi
sr ef
erstoasetofdevicesusedintheoffi
cesuchascomputer
,
l
aptops,photocopi
ers,
faxmachines,t
elephonesandpr
int
ers.
*
***
**r
eli
abl
e,compl
eteness,
timel
iness,
audi
tabi
li
ty,